Question

(I) Generally, firms engage in stock repurchases during recessions due to low stock prices. (II) During...

(I) Generally, firms engage in stock repurchases during recessions due to low stock prices.

(II) During periods of high growth, it is not unusual for firms to pay out 100% of their earnings to shareholders in the form of dividends.

Group of answer choices

A. (I) False; (II) True

B. I) True; (II) False

C. Both are false

D. Both are true

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Homework Answers

Answer #1

1) False - Incase of recession the firm growth and sales will be effected which may lead to less cash flows. Generally buybacks are made only when there is excess cash flows avaible with the firms and when there is need for change in capital structure. Hence it is incorrect.

2) True- Incase of high growth the firm earnings wil be high, however distribution of 100% profits will decrease the firms reinvestmeent through retained earnings. Hence it is the decision of management to distribute the dividend payout ratio.

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