Attempts: Keep the Highest: 13 5. Dividend reinvestment plans Dividend reinvestm

Question

Attempts: Keep the Highest: 13 5. Dividend reinvestment plans Dividend reinvestment plans (DRIPs) allow shareholders to reinvest their dividends in the company by purchasing additional shares instead of receiving cash dividend payments. The majority of large companies offer dividend reinvestment plans to their stockholders. These plans allow stockholders to automatically reinvest their dividends in the stock of the firm paying the dividend. Dividend reinvestment plans can be classified as either old stock or new stock plans Extensive Enterprise Company has raised $1 mlion in cash from its dividend reinvestment plan. The firm used these funds to purchase its stock on the open market. Which type of dividend reinvestment plan does this scenario describe? A new stock dividend reinvestment plan O An old stock dividend reinvestment plan levels of participation in a dividend reinvestment program suggest that stockholders would be better served if the firm reduced its cash dividends Why do firms use dividend reinvestment plans? Companies decide to start, continue, or terminate their dividend reinvestment plans for their stockholders based on the firms' need for equity capital. A firm is likely to stop using new stock DRIPs If it equity capital. additional

Explanation / Answer

1) This action justifies the new stock dividend reinvestment plan.

2) High level of participation in a dividend reinvestment program suggest that stockholders would be better served if the firm reduced its cash dividends

3) A firm is likely to stop using new stock DRIPS if it reduces the need of additional equity capital.

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