Why might a retired person prefer dividends to capital gains

Assignment Help Financial Management
Reference no: EM13886024

1. All else being equal, when the capital gains tax rate is less than an investor's personal marginal tax rate would the individual prefer that the firm issue dividends or allow the share price to appreciate? Why?

2. Based solely on the tax treatment of dividends why might a retired person prefer dividends to capital gains?

3. Explain why the Bird-in-the-Hand explanation of dividend policy is a fallacy.

4. A firm which normally does not not distribute any retained earnings to its shareholders (either via dividends or share buybacks) has found that over time, its industry has become more mature and new growth options are rarer. As a result it has accumulated signficant amounts of cash over the years but now finds fewer uses for these funds and does not expect this to change much in the future. Would you recommend the firm to distribute some of the retained earnings to shareholders? Why or why not.

5. Based on the information signaling argument, why would we expect an increase in dividends to increase the stock price and a decrease in dividends to decrease the stock price?

6. All else being equal, what would a firm's managers likely prefer to do with retained earnings: distribute it to shareholders or keep it within the firm as cash? Why?

Verified Expert

Reference no: EM13886024

Questions Cloud

What is the best way to handle gossip before it spreads? : What is the best way to handle gossip before it spreads?
Discuss new ways of marketing : The Marketing Scene is a publication that provides a platform for professionals and consumers to discuss new ways of marketing, the effectiveness of advertising trends, specific ad campaigns, and the impact this information has on society
What are reasons for returning a portion of retained earning : What are some circumstances/reasons for returning a portion of the retained earnings, and what are some circumstances / reasons for letting it accumulate
What are the principal benefits to mo bank : What are the principal benefits to MO Bank of becoming aligned with Mutual of Omaha Insurance Company, its parent company? Describe how the bank will take advantage of the parent company's businesses
Why might a retired person prefer dividends to capital gains : Based solely on the tax treatment of dividends why might a retired person prefer dividends to capital gains and explain why the Bird-in-the-Hand explanation of dividend policy is a fallacy.
Determine the flow distribution in the water supply system : Determine the flow distribution in the water supply system shown using the Hardy Cross method. The piezometric head at location A is HA ¼ 30 m, and the head at the reservoir is HF ¼ 0 m.
What drawbacks do community bankers anticipate : Why do community banks not want Walmart to be in the banking business? What are the possible benefits to Walmart of such a move? What drawbacks do community bankers anticipate if Walmart is allowed to operate a full- scale bank in the United States?
External factors which impacting on a business : Write about the External factors which impacting on a business in 1000 words.
Pricing objectives for a certain brand in the target market : Suppose that a firm attempts to achieve various types of pricing objectives for a certain brand in the target market. Given the profit equation as shown below, answer the following questions.Profit = Total Revenue - Total Cost

Reviews

Write a Review

 

Financial Management Questions & Answers

  Setting the price on new outpatient service

Assume that the managers of Fort Winston Hospital are setting the price on a new outpatient service.  What per visit price must be set for the service to break even? To earn an annual profit of $100,000? Repeat Part a, but assume that the variable co..

  Purchase of a share of blue grass

You are considering the purchase of a share of blue grass, inc. Common stock. You expect to sell it at the end of one year for $87 per share. You will also receive a dividend of $5.36 per share at the end of the next year. If your required return on ..

  What is the companys unit contribution margin

A cement manufacturer has supplied the following data: What is the company's unit contribution margin?

  What are the various kinds of budgets

You are a manager in a fictitious company of your choice. Your director has asked you to explain to the department staff the different types of budgets and techniques in order to provide an overall understanding. What are the various kinds of budgets..

  What will be alabasters cost of equity

Alabaster Incorporated wants to be levered at a debt to value ratio of .6. The cost of debt is 9%, the tax rate is 35%, and the cost of equity for an all equity firm is 12%. What will be Alabaster's cost of equity?

  Determine approximate rate they would need to pay investors

Market Enterprises would like to issue bonds and needs to determine the approximate rate they would need to pay investors. A firm with similar risk recently issued bonds with the following current features a 5% coupon rate, 10 years until maturity, a..

  What is the accounting and financial break-even quantity

A project has the following estimated data: price = $66 per unit; variable costs = $43 per unit; fixed costs = $16,500; required return = 8 percent; initial investment = $25,000; life = five years. What is the accounting break-even quantity? What is ..

  New debt and used this to buy back stock

Dye Trucking raised $260 million in new debt and used this to buy back stock. After the recap, Dye's stock price is $7.5. If Dye had 80 million shares of stock before the recap, how many shares does it have after the recap? Enter your answer in milli..

  Premium for financial risk

Ethier Enterprise has an unlevered beta of 1.3. Ethier is financed with 35% debt and has a levered beta of 1.5. If the risk free rate is 6.5% and the market risk premium is 5%, how much is the additional premium that Ethier's shareholders require to ..

  Face value zero-coupon bonds

Northern Warehouses wants to raise $12 million to expand its business. To accomplish this, it plans to sell 30-year, $1,000 face value zero-coupon bonds. The bonds will be priced to yield 5 percent. What is the minimum number of bonds it must sell to..

  Complete the contract and pay them a lump sum settlement now

Three years ago, Sam purchased a farm on contract from an older lady for $149,000 at 7% interest over 15 years. The lady died unexpectedly and the heirs would like Sam to pay off the contract now, which has a current remaining balance of $130,000 wit..

  What is the price per share of rite bite stock

Rite Bite Enterprises sells toothpicks. Gross revenues last year were $8.0 million, and total costs were $3.9 million. Rite Bite has 1.2 million shares of common stock outstanding. Gross revenues and costs are expected to grow at 4 percent per year. ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd