İŞLETME FİNANSI II - Deneme Sınavı - 10

The date the board of directors announces to pay the dividend is the declaration date. After declaring this date, the company is obligated to make the payment. The company will pay the dividend only to the registered shareholders of record on a specific date which is called record date. While registration takes three business days, anyone purchasing the company’s stock at least three business days before the date of record can claim the right to receive the dividend. Therefore, the date two business days before the date of record is called ex-dividend date. The company sends a dividend check to each of the registered shareholders at the date which is called payment date. The correct answer is E.

The date the board of directors announces to pay the dividend is the declaration date. After declaring this date, the company is obligated to make the payment. The correct answer is E.

Therefore, the date two business days before the date of record is called ex-dividend date. The company sends a dividend check to each of the registered shareholders at the date which is called payment date. The correct answer is D.

Another way to pay cash to its shareholders is repurchase of its own share of stock, in another words known as a buyback. A company sometimes repurchases stock to distribute excess funds, especially when the stock price is considered as undervalued. The correct answer is D.

Open-market repurchase. The company makes a public announcement to buy back its own share of stock in the open market that is the most common method. There exist certain daily buy-back limits on the number of shares in open market share repurchases. For instance, the SEC Rule 10b-18, introduced in 1983, dictates that the company cannot repurchase more than 25 % of the average daily trading volume in the US. 

The correct answer is C.

Dutch auction. The company specifies a price range that it is willing to pay, and shareholders offer how many shares they are willing to sell at that specific price range. The company then buys shares from the lowest priced offers. If there are not enough shares offered at the lowest price to accomplish the desired buy-back, the issuer may accept offers from the next higher priced.

The correct answer is B.

Advantages of Repurchases

The principal advantages of repurchases are as follows;

1. A company can repurchase stock to distribute excess cash without changing the amount of dividends. Because managements are reluctant to increase the dividends unless management is confident in the future. Also, they are reluctant to decrease the dividend because of the negative signal.

2. When a company has more equity than its target capital structure, the company can directly change its capital structure by repurchasing. For instance, a company may issue debt and use the proceeds to repurchase stocks for adjusting its capital structure.

3. A company can repurchase stock to minimize the “dilution effect” associated with exercising the stock options that have been given to employees as bonuses.

4. Due to the signaling effects, stock repurchase is perceived as a positive signal that the company’s stock is undervalued in the financial markets; therefore when a company engages in the stock repurchase, investors prefer to purchase additional shares.

5. Repurchases have a tax advantage over dividends due to the deferred tax on capital gains.

The correct answer is C.

Clientele effect is a tendency of a company to attract a set of investors whose particular needs for current versus future cash flow match with company’s dividend payouts. The correct answer is B.

Merton Miller and Franco Modigliani (1961) (MM) argued that while dividend policy does not have any impact on either the value of the company’s stock and its cost of capital, the value of the company is determined only by the earnings power and risk of its investments ( Merton H. Miller and Franco Modigliani, (1961) ). This is called a dividend irrelevance theory.

The correct answer is A.

Tax Preference Theory: Capital Gains are preferred The difference in the tax treatment of dividends versus capital gains influences investor’s preferences. While dividends are taxed at a higher rate than capital gains before 2003, the Jobs and Growth Act of 2003 equalized the tax rates on dividends and capital gains. However, there is still a tax advantage for capital gains returns relative to dividend income. While capital gains taxes are deferred until the stock is actually sold, taxes on dividend income is immediately paid when the dividends are received. Although dividends and capital gains are taxed nearly equally, the present value of taxes paid in the future has a lower effective cost than the value paid today. Also, if investors do not prefer to sell their stocks, they will not incur any obligation to pay taxes.

The correct answer is A.

Merger is a combination of two firms in a way that only one firm survives after combining. Merger can be in three ways. If the acquirer firm assumes the assets and liabilities of the target firm, then it is a statutory merger. If the target firm becomes a subsidiary of the acquired, then it is a subsidiary merger. The correct answer is E.

Acquisition is taking a controlling ownership in another firm, subsidiary of another firm, or business unit of another firm by an acquirer firm. The acquired firm may continue its existence after the acquisition as a subsidiary of the acquirer. The correct answer is E.

Offshoring: The moving of various operations of a company to another country for reasons such as lower labor costs or more favorable economic conditions in that other country. The correct answer is D.

Terminal value of a firm shows the value of all future cash flows. Because the assumption is that firms survive infinite period of time (if not they are founded for a limited time), perpetuity formula is used in order to calculate the terminal value. The correct answer is D.

Liquidation value is the value that could be realized if a company were sold individually and not as part of a going concern The correct answer is C.

Net asset value is the value of assets minus value of liabilities of a firm. The correct answer is C.

In isolation style, the acquirer company keeps the acquired company at a distance. Speed of change in the acquired company’s management is rapid because of the poor financial state. Organizational configuration is dissolved rather than retained, and the need to integrate capabilities for synergy is low. The correct answer is B.

Vertical M&A is a form of business combination between two firms of which one them is a supplier, or a customer to another. The correct answer is A.

"On the trade side, the General Agreement on Tariffs and Trade (GATT) which was signed in..."

On the trade side, the General Agreement on Tariffs and Trade which was signed in 1947 was designed to encourage free trade between member states by regulating and reducing tariffs on traded goods.