TitmanFinMan12e_Chapter 16_Study Question Solutions

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1、16-3Titman/Keown/Martin•FinancialManagement,TwelfthEditionChapter16SolutionstoStudyQuestions16-1.EMR’scashdividendin2012was$1.60pershareandthestockwassellingfor$46.49onJuly26,2012whichprovidedadividendyieldof3.5%.16-2.Thefirmcutitsdividendfrom$0.31perquartertoonly$0.10.Since

2、thentheyhaveincreasedthedividendanditwas$0.17pershareonJune21,2012.Thefirm’ssharepricehaddeclineddramaticallyfromahighof$37.36onApril1,2008downtoonly$8.29onMarch2,2009.TheproblemthatGEfaced,ofcourse,wastheconsequencesofthesevereeconomicdownturnbeginningwiththe2007-8recession

3、.16-3.Whencompaniesearnaprofittheyhaveachoicetomakeastowhattodowiththoseprofits.Onealternativeistogivetheprofitbacktothefirm’sshareholdersincashpaymentscalleddividends.Alternatively,thecompanycouldkeeptheprofitsandreinvesttheminthefirm’snewinvestmentsinthehopesofincreasingth

4、evalueofthefirm’scommonstock.Dividendpolicydescribeshowmuchofthefirm’sprofitstoretainandhowmuchtopayoutincashdividends.16-4.Afirm’sdividendpolicydetermineshowmuchcashitwilldistributetoitsshareholdersandwhenthesedistributionswillbemade.Wecancharacterizeafirm’sdividendpolicyin

5、termsoftwofundamentalattributes:1.Thefractionoffirmearningspaidindividends.Thisfirstattributeistypicallydescribedintermsofthedividendpayoutratio,whichindicatestheamountofdividendspaidrelativetothecompany’searnings.Forinstance,ifthedividendpershareis$2andtheearningspershareis

6、$4,thepayoutratiois50percent($2÷$4).2.Thepatternofpaymentsfollowedbythefirmovertime.Aswillbeobservedlaterinthechapter,dividendstabilitymaybealmostasimportanttotheinvestorastheamountofdividendsreceived.16-5.Astockdividendisapro-ratadistributionofadditionalsharesofstocktothefi

7、rm’scurrentstockholders.Thesedistributionsaregenerallydefinedintermsofafractionpaidpershare.Astocksplitisessentiallyaverylargestockdividend.Forexample,a2-for-1splitwouldentailissuingtwonewsharesofstocktoeachshareholderinexchangeforeacholdsharetheycurrentlyhold.Thusthe2for1st

8、ocksplitisequivalenttoa100%stockdividendsincebothwillresultinthenumberofsha