1. Dividend policy Aa Aa A firm\'s value depends on its expected free cash flow

Question

1. Dividend policy Aa Aa A firm's value depends on its expected free cash flow and its cost of capital. Distributions made in the form of dividends or stock repurchases impact the firm's value and the investors in different ways. Cloudy Skies Production Company's CFO has stated that the firm will pay dividends only if acceptable capital budgeting opportunities do not exist. Which concept did the CFO most likely base her decision on? O The free cash flow hypothesis The clientele effect The signaling hypothesis Dividend irrelevance theory Consider the case of Blue Water Producers Inc., and answer the question that follows: Blue Water Producers Inc. is an oil drilling company. The company paid a dividend of $1.50 last year, and, in the past, its dividend has increased steadily by about 4% a year. Blue Water just announced that its dividend will increase to $2.10 this year, and its share price rose from $28 per share to $30 per share immediately after the announcement. Which of the following best explains why Blue Water's stock price increased as it did? The clientele effect O The signaling hypothesis Dividend irrelevance theory

Explanation / Answer

1

The signaling hypothesis

2

clientele effect
3

False
4

more
5

investors with low tax rates who depend on current dividend income for living expenses

6

past

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.