Dividend theories and share value CFA Flashcards - Medical Study Cards
Master Dividend theories and share value with Oncourse flashcards. These spaced repetition flashcards are designed for medical students preparing for NEET PG, USMLE Step 1, USMLE Step 2, MBBS exams, and other medical licensing examinations.
Dividend theories and share value Flashcard Deck - 9 Cards
Flashcard 1: Dividend irrelevance theory?
Answer: - Miller & Mod believe dividend policy is irrelevant & has no effect on stock price or its cost of capital (based on homemade dividends concept)
- assumptions: no taxes, no brokerage costs & infinitely divisible shares
Flashcard 2: Tax aversion theory?
Answer: investors prefer not to receive dividends due to higher tax rates than capital gains
Flashcard 3: after tax cost of funds
Answer: \= (after-tax cost of borrowing)(shares repurchased)(buyback share price)
Flashcard 4: number of treasury shares =
Answer: \= assumed proceeds / average share price during reporting period
Flashcard 5: Share repurchase methods
Answer: - open market transactions
- fixed-price tender offer: buy fixed # of shares at premium (fastest process)
- Dutch auction: range of prices, identify minimum clearing price, the price of last offer accepted (highest accepted bid price) is price paid
- direct negotiation: purchase from major shareholder, usually at discount
Flashcard 6: 5 types of dividends
Answer: 1. regular cash dividends
2. special dividends
3. liquidating dividend: paid when part or all of firm is sold or when dividends in excess of cumulative retained earnings are paid
4. stock dividend: more shares, increase stock's float
5. stock splits: like stock dividends but larger in size
Flashcard 7: Stock dividends & splits affect on capital structure?
Answer: no affect on capital structure or ratios
- stock dividend: decrease in retained earnings offset by increase in contributed capital
- stock split: no affect on book value of equity or tax basis for shareholders
Flashcard 8: Effects of repurchasing shares using debt
Answer: - less of an increase in EPS than using cash
- EPS will increase if the after-tax funding cost is less than the earnings yield
Flashcard 9: Sustainable growth rate. SGR =
Answer: \= b\*ROE\
b: retention rate
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