Dividend Reinvestment Schemes Are a Significant Source of Equity for Many

question 13

Multiple Choice

Dividend reinvestment schemes are a significant source of equity for many Australian companies.Which of the following advantages of dividend reinvestment schemes may,at times,also be regarded as a disadvantage?

• A) The shareholder avoids transaction costs on the share issue.
• B) The share issue price is usually at a discount to the average market price.
• C) Such schemes allow dividends to be paid while retaining cash for future growth.
• D) The company is able to pass on franking credit to its shareholders.

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Definitions:

Future Value

The value of a current asset or amount of money at a particular date in the future, calculated using a specified rate of growth or interest.

Compounded Semiannually

Compounded semiannually refers to the process of calculating interest on a principal sum and any accrued interest not only at the end of the year but also at a midpoint during the year, typically every six months.

Annual Interest

The amount of interest due over the course of a year on a loan or financial investment, typically expressed as a percentage of the principal.