Lecture 10- Payout Policy

Which of the following is a potential benefit for companies that choose to pay dividends?

• It can always provide a steady stream of income for shareholders

• It always increases the stock price

• It leads to rapid business expansion

• It attracts younger, growth focused investors

Why might a young or high-growth company decide not to pay dividends?

• Because they are legally not allowed to do so

• To avoid attracting income-focused investors

• because young companies typically have low profitability

• To use all available profits to invest in new products or expand operations.

What does Free Cash flow represent for a company?

• The cash available after all expenses, reinvestments and capital costs are covered

• The total revenue generated by the company in a fiscal year

• The money left after paying employee salaries

• The company's net income after taxes.

Which of the following can a company with high Free Cash Flow potentially do?

• Pay dividends to shareholders

• Buy back stock

• Reduce debt

• All of the above

Why is Free Cash Flow an important measure for a company?

• It determines the company's stock price

• It allows a company to pursue opportunities that enhance shareholder value

• It signifies the total debt of the company.

• It reveals the company's marketing strategy.

What is the significance of the record date for shareholders?

• It is the date on which the board of directors announces a dividend

• It is the date on which the dividend is paid.

• It is the date set by the company to determine which shareholders are eligible to receive a dividend

• It is the date from which the stock trades without the value of the next dividend payment.

If an investor buys shares on the ex-dividend date, will they receive the dividend payment?

• Yes, all shareholders receive the dividend

• Yes, but only if they sell the shares before the record date

• No, shareholders must own the stock before the ex-dividend date to receive the date.

• No, shareholders must own the stock before the declaration date to receive the dividends.

What does signalling theory in finance suggest?

• Firms can provide significant signals to investors through their actions due to inherent information asymmetry

• Investors always have accurate and up-to-date information about the firms in which they invest.

• All signals sent by a firm to investors are false.

• The actions of a firm's management have no effect on investors perception

According to research, what do managers tend to focus more on?

• The absolute levels of dividends

• The ratio of dividends to share price

• The changes in dividend amounts

• The relationship between dividends and the company's market share

In response to temporary changes in earnings, what are managers likely to do with dividends?

• Increase them significantly

• Decrease them significantly

• Keep them relatively stable

• Stop paying them altogether