Capital Structure 3

Question 1

what is the chronological calendar for the four dates in the dividend payment process

Answer 1

1) Declaration date
2) ex-dividend date
3) date of record
4) payment date

Question 2

declaration date

Answer 2

when the Board of Directors approves (declares) the distribution of a dividend

Question 3

ex-dividend date

Answer 3

first date on which you buy stock without being entitled to receive a declared dividend

Question 4

date of record

Answer 4

date on which you must own shares to be entitled to the dividend

Question 5

What options protect best against Rise in stock prices?

Answer 5

1) Warrants
2) Call Options
3) Convertible Bonds

Question 6

What options protect best against Fall in stock prices?

Answer 6

Put options

Question 7

putable bond

Answer 7

bond with the option to sell the bond back for a fixed priced

Question 8

what can be a financial benefit when inflation takes place?

Answer 8

the dollars that are used to repay the bonds are worth less than the ones that were received on the day of issuance

Question 9

Bird in the hand theory

Answer 9

Since investors are less certain of receiving future capital gains, investors value a dollar of current dividend more than a dollar of uncertain capital gains

This will result in a high firm value

Question 10

dividend irrelevance theory

Answer 10

states that investors are neutral as to whether returns come from dividends or capital gains