Economics
FIN 307 GU Business Finance Chapter Questions Research Paper

FIN 307

Grantham University

FIN

Question Description

Need help with my Economics question - I’m studying for my class.

"Questions are attached"


Complete the following textbook questions:

Chapter 14: Questions 14-3 through 14-5 on

Chapter 15: Questions 15-1 through 15-5 on

Instructions

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Write between 750 – 1,250 words (approximately 3 – 5 pages) using Microsoft Word in APA style, see example below.

Use font size 12 and 1” margins.

Include cover page and reference page.

At least 80% of your paper must be original content/writing.

No more than 20% of your content/information may come from references.

Use at least three references from outside the course material; one reference must be from EBSCOhost. Text book, lectures, and other materials in the course may be used, but are not counted toward the three reference requirement.

Cite all reference material (data, dates, graphs, quotes, paraphrased words, values, etc.) in the paper and list on a reference page in APA style.

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Print Preview 1 of 2 https://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/pr... Chapter 14: Distributions to Shareholders: Dividends and Repurchases Questions Book Title: Financial Management: Theory and Practice Printed By: Jaime Cruz (navycruz@gmail.com) © 2017 Cengage Learning, Cengage Learning Chapter Review Questions (14-1) Define each of the following terms: a. Optimal distribution policy b. Dividend irrelevance theory; bird-in-the-hand theory; tax effect theory c. Signaling hypothesis; clientele effect d. Residual distribution model; extra dividend e. Declaration date; holder-of-record date; ex-dividend date; payment date f. Dividend reinvestment plan (DRIP) g. Stock split; stock dividend; stock repurchase (14-2) How would each of the following changes tend to affect aggregate payout ratios (that is, the average for all corporations), other things held constant? Explain your answers. a. An increase in the personal income tax rate b. A liberalization of depreciation for federal income tax purposes—that is, faster tax write-offs c. A rise in interest rates d. An increase in corporate profits e. A decline in investment opportunities f. Permission for corporations to deduct dividends for tax purposes as they now do interest charges g. A change in the Tax Code so that both realized and unrealized capital gains in any year were taxed at the same rate as dividends 3/20/2020, 8:52 PM Print Preview 2 of 2 https://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/pr... (14-3) What is the difference between a stock dividend and a stock split? As a stockholder, would you prefer to see your company declare a 100% stock dividend or a 2-for-1 split? Assume that either action is feasible. (14-4) One position expressed in the financial literature is that firms set their dividends as a residual after using income to support new investments. Explain what a residual policy implies (assuming that all distributions are in the form of dividends), illustrating your answer with a table showing how different investment opportunities could lead to different dividend payout ratios. (14-5) Indicate whether the following statements are true or false. If the statement is false, explain why. a. If a firm repurchases its stock in the open market, the shareholders who tender the stock are subject to capital gains taxes. b. If you own 100 shares in a company’s stock and the company’s stock splits 2-for-1, then you will own 200 shares in the company following the split. c. Some dividend reinvestment plans increase the amount of equity capital available to the firm. d. The Tax Code encourages companies to pay a large percentage of their net income in the form of dividends. e. A company that has established a clientele of investors who prefer large dividends is unlikely to adopt a residual dividend policy. f. If a firm follows a residual dividend policy then, holding all else constant, its dividend payout will tend to rise whenever the firm’s investment opportunities improve. Chapter 14: Distributions to Shareholders: Dividends and Repurchases Questions Book Title: Financial Management: Theory and Practice Printed By: Jaime Cruz (navycruz@gmail.com) © 2017 Cengage Learning, Cengage Learning © 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. 3/20/2020, 8:52 PM Print Preview 1 of 2 https://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/pr... Chapter 15: Capital Structure Decisions Questions Book Title: Financial Management: Theory and Practice Printed By: Jaime Cruz (navycruz@gmail.com) © 2017 Cengage Learning, Cengage Learning Chapter Review Questions (15-1) Define each of the following terms: a. Capital structure; business risk; financial risk b. Operating leverage; financial leverage; break-even point c. Reserve borrowing capacity (15-2) What term refers to the uncertainty inherent in projections of future ROIC? (15-3) Firms with relatively high nonfinancial fixed costs are said to have a high degree of what? (15-4) “One type of leverage affects both EBIT and EPS. The other type affects only EPS.” Explain this statement. (15-5) Why is the following statement true? “Other things being the same, firms with relatively stable sales are able to carry relatively high debt ratios.” (15-6) 3/20/2020, 8:53 PM Print Preview 2 of 2 https://ng.cengage.com/static/nbreader/ui/apps/nbreader/print_preview/pr... Why do public utility companies usually have capital structures that are different from those of retail firms? (15-7) Why is EBIT generally considered to be independent of financial leverage? Why might EBIT be influenced by financial leverage at high debt levels? (15-8) If a firm went from zero debt to successively higher levels of debt, why would you expect its stock price to first rise, then hit a peak, and then begin to decline? (15-9) Your firm’s CEO has just learned about options and how your firm’s equity can be viewed as an option. Why might he want to increase the riskiness of the firm, and why might the bondholders be unhappy about this? Chapter 15: Capital Structure Decisions Questions Book Title: Financial Management: Theory and Practice Printed By: Jaime Cruz (navycruz@gmail.com) © 2017 Cengage Learning, Cengage Learning © 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. 3/20/2020, 8:53 PM ...
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Final Answer

Attached.

Running Head: BUSINESS FINANCE CHAPTER QUESTIONS

Business Finance Chapter Questions
Author’s Name
Institution Affiliation
Date

1

2
BUSINESS FINANCE CHAPTER QUESTIONS

(14-3)
An increase in stock dividends as well as stock splits increases the number of
outstanding shares in the company but the rate of the increase in stock dividends is slower
compared to the rate of increase in splits. A stock split gives a fraction of shares to the current
shareholder for each share owned (Ameer, & Abbas, 2017). Therefore, if I were a
stockholder, a 2-for-1 split in my company would be my preferred option.

(14-4)
Residual dividends imply that the company gets more common stock than the retained
earnings so that dividends are issued to investors using the remnant of the earnings after
paying expenditures. If the company doesn’t meet the common equity requirements, then it
issues more new stocks to maintain its capital structure target.
PARTICULARS
Capital Budget
Net Income
Required Equity
Distribution Paid
Distribution Ratio

POOR

AVERAGE

GOOD

(14-5)
a. TRUE
b. TRUE
c. TRUE
d. FALSE. It is false because as per the tax code, a company would rather sour...

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