6.The Skubin Candy Company is a highly profitable and rapidly growing maker of chocolates and other confections. Skubin’s management team is considering various dividend policies and is most concerned about the possibility of the dividend amount decreasing from one year to another and the negative reaction from investors that such a decrease may cause. Under which dividend policy would Skubin’s dividend be most likely to decline in a given year? A) Longer-term residual dividend. B) Residual dividend. C) Target payout ratio. D) Dividend stability. Click for Answer and Explanation B) Since Skubin Candy Corporation is a profitable, rapidly growing company, both a dividend stability and target payout policy is likely to lead to consistent dividend increases. A residual dividend approach, however, could lead to a decrease in the dividend if the company has sufficient positive NPV investment opportunities, thus leaving fewer dollars available for dividend payments. 7.Hikaru Takei is the portfolio manager for the Reliant Dividend Focused Fund. Takei wants to add a firm to his portfolio that follows a stable dividend policy. Takei is considering investing in one of four companies: §
Kirk Beauty Supplies maintains a constant dividend payout of 25 to 30 percent. §
Chekov Energy makes a regular practice of paying special dividends during times of high oil prices. §
Kelley Medical Devices increases its dividend each year in accordance with the company’s long run growth rate of 4 percent. §
Barrett Satellite Systems has maintained a dividend of $2.00 per share over the last 6 years. Which stock best meets Takei’s criteria? A) Kirk Beauty Supplies. B) Barrett Satellite Systems. C) Chekov Energy. D) Kelley Medical Devices. Click for Answer and Explanation D) Due to inflation considerations, a company with a stable dividend policy will have stability in the rate of increase for its dividend each year. This typically means aligning the company’s dividend growth rate with its long-term growth rate. Although the company with the fixed per share dividend is a tempting choice, once inflation is considered, a fixed $2.00 per share dividend is actually declining each year in terms of spending power. 8.Which of the following statements regarding dividend policies is TRUE? A) Companies following a dividend stability policy seek to pay a constant dollar amount per share over a long period of time. B) A target payout ratio approach is likely to result in a lower risk premium assigned to a company by investors. C) Companies using a longer-term residual dividend policy pay a steady dividend based on long-term forecast of their capital budget. D) A residual dividend approach means that companies use profits not allocated to dividends to repurchase shares of stock. Click for Answer and Explanation C) Companies following a longer-term residual dividend approach forecast their capital budget over a longer time frame (5-10 years). Leftover earnings over this period are allocated as dividends and paid out in relatively equal amounts each year. The other statements are incorrect. With a stable dividend policy, companies seek to increase their dividend each year at a constant rate. A strict target payout approach means that dividends will vary in proportion with earnings, likely resulting in volatile dividends and a higher risk premium. A residual dividend approach means that companies use profits leftover from reinvesting the company’s growth as dividends. 9.Faltys Asset Management (FAM) follows a dividend growth investment strategy. The Faltys Dividend Growth Fund only invests in companies that have a dividend yield greater than the S& 500 and have the potential to increase that dividend each year at a rate that exceeds inflation. Warren Berlin, Director of Marketing for FAM has been developing a presentation book to present the fund to prospective clients. These prospective clients include retired individuals who want dividend income and trust companies who manage trust accounts which provide income to be distributed to beneficiaries. Which of the following dividend theories best describes the investment strategy and the marketing strategy of the fund? Investment Strategy | Marketing Strategy |
A) Signaling effect Bird-in-the-hand B) Stable dividend
Clientele effect C) Modigliani and Miller Stable dividend D) Bird-in-the-hand Modigliani and Miller Click for Answer and Explanation B) The investment strategy would best be described as a stable dividend strategy. A stable dividend policy means that a company’s dividend payout is aligned with company’s long-term growth rate such that there is stability in the rate of increase for the dividend. The marketing strategy would best be described as the clientele effect. Berlin is pursuing specific groups of investors that prefer dividends. Note that the bird-in-in-the-hand theory states that investors prefer the certainty of dividends now to uncertain capital gains in the future, while Modigliani and Miller proposed that dividend policy has no impact on the price of a firm’s stock. | 
发表于 2008-4-19 18:44
|