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taurus [48]
3 years ago
13

Which of the following statements is true? Increasing dividends will always increase the stock price. Increasing dividends will

always decrease the stock price, because the firm is depleting internal funding resources. Increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and that impedes growth.
Business
2 answers:
tiny-mole [99]3 years ago
5 0

Answer:

Increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and that impedes growth.

Explanation:

if increasing dividends results in the company not having enough funds for reinvestment, then value of the company may go down, since value of a stock is the present value of all expected cash-flows from holding the stock. But, if the company is paying dividend from free cash flows, then the payment of the dividend will not negatively affect the value of the stock.

In summary, paying a dividend will not always increase the stock price, and will not always decrease the stock price.

zysi [14]3 years ago
5 0

Answer:

The correct answer is letter "C": Increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and that impedes growth.

Explanation:

Dividends are one of the main determinants of corporate interest, according to the Dividend Discount Model (<em>DDM</em>). The other determinant is the risk of cash flows from the product, which is expressed in the rate of return expected. Because of the need for reinvestment, most fast-growing companies do not pay dividends. It is only from free cash flow that dividends should be paid, otherwise, if taken the payment from the earnings, investments in the company will be less.

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Cork Inc. declared a $160,000 cash dividend. It currently has 6,000 shares of 7%, $100 par value cumulative preferred stock outs
Ira Lisetskai [31]

Answer:

$124,000 is the correct answer if we use 6% which is the correct question scenario. If we take 7% then its

Explanation:

The cash dividend announced is $160,000. Remember the first payment goes to preferred shareholders and then the amount left would be distributed among the ordinary shareholders.

The dividend share of Preferred shareholders = 6000 shares * $100 par value * 6% fixed rate = $36,000

After deducting this amount from the dividend announce will go to ordinary shareholders and is calculated as under:

Share of Dividend of ordinary shareholders = $160,000 - $36,000

= $124,000

Similarly if we use 7% fixed rate, then

The dividend share of Preferred shareholders = 6000 shares * $100 par value * 7% fixed rate = $42,000

After deducting this amount from the dividend announce will go to ordinary shareholders and is calculated as under:

Share of Dividend of ordinary shareholders = $160,000 - $42,000

= $124,000

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Answer:

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