7.9 Review Questions: Chapter Seven

Review Questions: Chapter Seven

  1. State and explain all the various Dividend Policy Theories.
  2. How do Dividend- and Capital-Structure Policies interact? Use quantitative analysis.
  3. Do dividends matter? If so, to what do they matter?
  4. Absent taxes, what is the difference between paying a cash dividend versus using the same funds instead to buy back stock? State your reasonable assumptions. Create a numerical example.
  5. As an investor, do you care about dividends? Why or why not? Utilize a Valuation Model to support your own personal view.
  6. A company’s shares trade at $80 per share. It announces that it will split its shares 4/1. Joe owns 1,000 shares. After the split, how many shares will he own and at what value?

Selected Answers

Answer to Question #6:

4/1 Split  Pre- Split  Post – Split 
Number of Shares 1,000 4,000
Price Per Share $80 $20
Value of the Shares $80,000 $80,000




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