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Chapter 18:   Dividend Policy

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1. Modigliani and Miller maintain that it doesn't matter if a firm pays dividends or not; the effect of payments on shareholder wealth is offset exactly by other means of financing.

2. Companies with high growth rates tend to have high dividend-payout ratios because they want to attract more investors.

3. When dividends are treated as a passive residual, the percent of earnings paid out as dividends is based solely on the availability of acceptable investment opportunities.

4. The critical question in dividend policy is whether dividends have an influence upon the value of the firm, given the firm's investment decision.

5. The repurchase of common stock is viewed as an investment decision by some and as a dividend decision by others.

6. Cash dividends and earnings retention have a reciprocal relationship.

7. Most states do not object to the payment of dividends as long as it does not impair the company's capital.

8. After a stock repurchase there are fewer shares of common stock outstanding and therefore, all other things equal, earnings per share is increased.

9. A reverse stock split results in an increase in the number of shares of outstanding common stock and a decrease in the par value per share.

10. Both stock dividends and stock splits appear to send positive signals to the market about the company and often result in positive stock-price reactions.

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