Alumi Co. pays a dividend. Which of the following events is least likely to cause its stock price to fall? Alumi Co.: A) issues more common stock. B) announces that its next quarterly dividend will decline. C) increases its debt to 75% of capital, the level of earnings per share maximization. D) pays its quarterly dividend.
Is it B) due to the dividend signalling effect? Choice A: More stock – means good outlook. So Stock price should not fall. Increase Debt choice C is to the level of EPS maximisation – so stock price should not fall again. Pay Quarterly dividend due to signalling will increase share price.
C is my guess A is dilutive and lowers EPS. B is a negative signal and will cause the stock to drop D the stock price will be reduced on the ex-dividend date by the amount of the dividend, not the date the dividend paid. But I like C more here.
My mistake… least likely… I CAN’T READ!!! HELP ME!!!
A) issues more common stock. common stock is issued usually at discount otherwise nobody would buy it so it decreases price B) announces that its next quarterly dividend will decline. this will decline the price using ddm but can be a sign that the company needs money to expand C) increases its debt to 75% of capital, the level of earnings per share maximization. increasing debt makes the investment riskier so price will fall D) pays its quarterly dividend. the price falls usually by the amount of dividend this should be an easy question but for some reason for me it’s not. but Ill go with C since it increases the EPS
cpk relax that is all you have to do
If I recall its D…stock price falls on ex-dividend date, not the date paid.
Now that I look at it, it may be D. As budfox said, the price would decline on the day it goes ex-dividend, not on the day they pay the dividend. Too late.
i just assumed they were talking about the record date stupid me curios to see the answer
D) pays its quarterly dividends The prices fall, the day, they are traded X-off-dividends. The actual dividend payment happens at the payment date (but by that time the stock price is already adjusted to its economic worth), which could be 15 days to 1 month later in the timeline. Correct me if I am wrong? - Dinesh S
i think you are wrong record date and payment date are different record date is the date at which you need to have the stock to get the dividend, so you need to buy it at least 3 days before that payment date is much later
DEHP Declaration Date Ex-Dividend Date Holder of record Date Payment date That’s how I remember those *?#. dates
yes florinpop, Thanks!! I meant ‘payment date’, these terminologies are so confusing. - Dinesh S
Declare---------Ex-Dividend--------HOR----------PAY - Dinesh S EDIT: oops, cpk already addressed it well. I was late on this
I got this wrong - I chose C, but the correct answer is D: Stock prices tend to fall on the ex-dividend date, not on the pay date. Announcing a dividend cut is a negative signal to investors. While a stock repurchase is a positive signal to investors, a stock offering is a negative signal. While a higher debt level may maximize Alumi Co.’s earnings, that level is not likely to maximize the firm’s price since it is likely to be associated with a higher level of risk.
what… i thot using more financing will increase EPS, which will increase stock prices…
ancientmtk it was my presumption because i wasn’t paying enough attention to D but the reality is that the market will adjust the new EPS to the new-higher risk of the investment. so the outcome could be unpredictable
That’s an awful question. A, C and D shouldn’t have a negative effect on the stock price. With that being said, you can see that they were trying to trick you with D, hence that’s the right answer… but still stupid
why wouldn’t A have a negative effect?