How do dividends affect the long-term market value

How do dividends affect the long-term market value of a firm?Growing dividends tend to increase a firm’s market value.Dividends reduce the firm’s cash flow and therefore reduce its market value.Dividends have little or no effect on long-term market value.A firm’s dividend stream determines its long-term market value.Long-term market value cannot be determined for a firm which has not historically paid dividends.Research has shown that firms with significant activities aimed at improving environmental and social conditions do not actually create additional shareholder value through such programs.TrueFalseHarold Meyerson, a critic of the focus on shareholder value, wrote an article stating that a focus on increasing shareholder value amounts to a “skim.” Which of the following problems does Meyerson point out as a consequence of having shareholder value as a main objective?Firms reduce their investment in new facilities and new products.American firms retain profits in off-shore accounts, to avoid U.S. taxes.Firms have not actually distributed much money to common shareholders.Pharmaceutical firms are able to charge excessively high prices for their prescription drugs.All of the above.Return on equity (ROE) is not a good measure of a firm’s performance in creating value. Why not?ROE does not reflect the actual accounting net income of the firm.The firm’s managers can manipulate ROE, regardless of the firm’s performance.ROE always looks worse at a highly leveraged firm.In some situations, a firm’s cash flow will decrease, its net income will increase, and ROE will look worse.When ROE increases, firm value increases only if the firm is growing.In order to increase long-term shareholder value, the two most important strategies for a Group 1 firm to follow are __________.Increase sales growth rate and earnings growth rate.Increase ROIC and reduce WACC.Lower its tax rate and increase its growth rate (new investment).Increase ROIC and increase its growth rate (new investment).Increase sales by introducing new products, and improve customer service by increasing inventory levels.Critics of the focus on shareholder value argue that it gives managers an incentive to boost short-term results instead of making investments for long-term value. Which of the following arguments have been made to counter that assertion?Research has shown that the stock market values long-term value creation more than it values short-term profits.Paying higher dividends in the short-term doesn’t actually benefit shareholders as much as making long-term investments in Group 1 projects.Firms which focus on long-term value creation are more likely to have better working conditions for employees.Stock prices reflect the discounted present value of all future cash flows at a firm, not just the next quarter’s earnings.I. onlyI. and II.I., II., and IV.I. and IV.All of the above.According to the Stewart and McKinsey readings we have seen, there are many arguments in favor of having firms focus on long-term shareholder value. Which of the following arguments do they make?A focus on shareholder value gives firms an incentive to pay higher dividends.A focus on shareholder value gives firms an incentive to allocate scarce resources more efficiently.A focus on shareholder value gives CEOs higher bonuses.A focus on shareholder value gives firms an incentive to conserve cash by minimizing investment in R&D.A focus on shareholder value gives firms an incentive to increase accounting net income.Which of the following is most likely to increase ROIC, if nothing else changes?The firm increases the rate of return on its surplus cash account.The firm allows the amount of its accounts receivable to increase.The firm reduces its inventory.The firm renegotiates its bank loan and lowers its interest expense.The firm uses surplus cash to pay a large dividend.A firm has found that one of its operating business units is a Group 3 business: its rate of return is less than its cost of capital. The firm makes a list of possible steps it could take to remedy the situation. Which of the following steps should be on that list?I. Close the division.II. Expand the division internationally.III. Find a way to reduce the division’s tax rate.IV. Reduce the unit cost of the division’s product.I. and IV.I. onlyII. onlyIV. onlyI., III. and IV.

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