Question 1

According to survey data, which is the least-often cited dividend policy consideration?

Accepted Answer

A) Firms want to avoid dividend reductions. 
B) Firms desire a smooth dividend policy. 
C) Firms avoid dividend policy reversals. 
D) Firms would prefer to raise new funds rather than reduce dividends. 
A) Firms want to avoid dividend reductions. 
B) Firms desire a smooth dividend policy. 
C) Firms avoid dividend policy reversals. 
D) Firms would prefer to raise new funds rather than reduce dividends. D

Question 2

Generally, investors interpret the announcement of an increase in dividends as

Accepted Answer

A) bad news, and the stock price drops. 
B) good news, and the stock price increases. 
C) a nonevent that does not affect the stock price. 
D) very bad news, and the stock price plunges. 
A) bad news, and the stock price drops. 
B) good news, and the stock price increases. 
C) a nonevent that does not affect the stock price. 
D) very bad news, and the stock price plunges. B

Question 3

A high-dividend policy is more difficult for a weak firm than a strong firm because it likely will not have the cash to support it.

Accepted Answer

A) True 
 B)False  True

Question 4

Stock repurchases are like bumper dividends, but they do not typically substitute for regular cash dividends.

Accepted Answer

A) True 
 B)False

Question 5

According to financial executives' views on dividend policy, which of the following statements is most frequently cited?

Accepted Answer

A) We try to avoid reducing the dividend. 
B) We try to maintain a smooth dividend stream. 
C) We look at the current dividend level. 
D) We are reluctant to make a change that may have to be reversed. 
A) We try to avoid reducing the dividend. 
B) We try to maintain a smooth dividend stream. 
C) We look at the current dividend level. 
D) We are reluctant to make a change that may have to be reversed.

Question 6

Generally, investors view the announcement of an open-market repurchase program as

Accepted Answer

A) bad news, and the stock price drops. 
B) good news, and the stock price increases. 
C) a nonevent that does not affect the stock price. 
D) very bad news, and the stock price plunges. 
A) bad news, and the stock price drops. 
B) good news, and the stock price increases. 
C) a nonevent that does not affect the stock price. 
D) very bad news, and the stock price plunges.

Question 7

A firm in Australia earns a pretax profit of $A10 per share. Suppose that it pays a corporate tax of $3 per share (30 percent tax rate)in taxes. The firm pays the remaining $A7 in dividends to a shareholder in the 30 percent marginal tax bracket. What is the amount of additional tax paid by the shareholder under an imputation tax system?

Accepted Answer

A) $A2.10 
B) $A0.00 
C) $A3.00 
D) $A5.10 
A) $A2.10 
B) $A0.00 
C) $A3.00 
D) $A5.10

Question 8

A key assumption of the Miller and Modigliani (MM)dividend irrelevance argument is that

Accepted Answer

A) future stock prices are certain. 
B) firms have an adequate supply of Treasury shares. 
C) there exists a risk-free asset. 
D) new shares are sold at a fair price. 
A) future stock prices are certain. 
B) firms have an adequate supply of Treasury shares. 
C) there exists a risk-free asset. 
D) new shares are sold at a fair price.

Question 9

On January 2, Michigan Mining declared a $2-per-share quarterly dividend payable on March 9th to stockholders of record on Friday, February 9. What is the latest date by which you could purchase the stock and still get the recently declared dividend?

Accepted Answer

A) February 5 
B) February 6 
C) February 7 
D) February 8 
A) February 5 
B) February 6 
C) February 7 
D) February 8

Question 10

Briefly describe the leftists' point of view on dividends and taxes.

Accepted Answer

If dividends are taxed at a higher rate

Question 11

Dividend payments are used to change the firm's capital structure by replacing equity with debt.

Accepted Answer

A) True 
 B)False

Question 12

A Dutch auction is the same as a(n)

Accepted Answer

A) discriminatory price auction. 
B) uniform price auction. 
C) English auction. 
D) share repurchase. 
A) discriminatory price auction. 
B) uniform price auction. 
C) English auction. 
D) share repurchase.

Question 13

Miller and Modigliani's indifference proposition regarding dividend policy

Accepted Answer

A) assumes that tax rates increase at the same rate as inflation. 
B) assumes that investors can sell their stock at a fair price. 
C) states that investors are indifferent between stock dividends and cash dividends. 
D) states that investors are indifferent between stock repurchases and cash dividends. 
A) assumes that tax rates increase at the same rate as inflation. 
B) assumes that investors can sell their stock at a fair price. 
C) states that investors are indifferent between stock dividends and cash dividends. 
D) states that investors are indifferent between stock repurchases and cash dividends.

Question 14

A firm in Australia earns a pretax profit of $A10 per share. Suppose that it pays a corporate tax of $3 per share (30 percent tax rate)in taxes. The firm pays the remaining $A7 in dividends to a shareholder in the 40 percent marginal tax bracket. What is the amount of additional tax paid by the shareholder under an imputation tax system?

Accepted Answer

A) $A1.00 
B) $0.00 
C) $A4.00 
D) $A5.80 
A) $A1.00 
B) $0.00 
C) $A4.00 
D) $A5.80

Question 15

Australia follows an imputation tax system for the payment of taxes on dividends.

Accepted Answer

A) True 
 B)False

Question 16

If investors do not like dividends because of the additional taxes that they have to pay, how would you expect stock prices to behave on the ex-dividend date?

Accepted Answer

A) Fall by more than the amount of the dividend 
B) Fall exactly by the amount of the dividend 
C) Fall by less than the amount of the dividend 
D) Cannot be predicted. 
A) Fall by more than the amount of the dividend 
B) Fall exactly by the amount of the dividend 
C) Fall by less than the amount of the dividend 
D) Cannot be predicted.

Question 17

Describe Miller and Modigliani's proposition on dividend irrelevance.

Accepted Answer

Miller and Modigliani state th

Question 18

Managers are reluctant to make dividend changes that they may have to reverse.

Accepted Answer

A) True 
 B)False

Question 19

Consider the procedure whereby the firm states a series of prices at which it is prepared to repurchase stock. Shareholders then submit offers indicating how many shares they wish to sell and at which price. The firm then calculates the lowest price at which it is able to buy the desired number of shares. This procedure is known as a(n)

Accepted Answer

A) open market repurchase. 
B) Dutch auction. 
C) green mail. 
D) tender offer. 
A) open market repurchase. 
B) Dutch auction. 
C) green mail. 
D) tender offer.

Question 20

Which of the following lists events in chronological order from earliest to latest?

Accepted Answer

A) Record date, declaration date, ex-dividend date 
B) Declaration date, record date, ex-dividend date 
C) Declaration date, ex-dividend date, record date 
D) Record date, ex-dividend date, declaration date 
A) Record date, declaration date, ex-dividend date 
B) Declaration date, record date, ex-dividend date 
C) Declaration date, ex-dividend date, record date 
D) Record date, ex-dividend date, declaration date

Exam 16: Payout Policy

According to survey data, which is the least-often cited dividend policy consideration?

Generally, investors interpret the announcement of an increase in dividends as

A high-dividend policy is more difficult for a weak firm than a strong firm because it likely will not have the cash to support it.

Stock repurchases are like bumper dividends, but they do not typically substitute for regular cash dividends.

According to financial executives' views on dividend policy, which of the following statements is most frequently cited?

Generally, investors view the announcement of an open-market repurchase program as

A key assumption of the Miller and Modigliani (MM)dividend irrelevance argument is that

On January 2, Michigan Mining declared a $2-per-share quarterly dividend payable on March 9th to stockholders of record on Friday, February 9. What is the latest date by which you could purchase the stock and still get the recently declared dividend?

Briefly describe the leftists' point of view on dividends and taxes.

Dividend payments are used to change the firm's capital structure by replacing equity with debt.

A Dutch auction is the same as a(n)

Miller and Modigliani's indifference proposition regarding dividend policy

Australia follows an imputation tax system for the payment of taxes on dividends.

If investors do not like dividends because of the additional taxes that they have to pay, how would you expect stock prices to behave on the ex-dividend date?

Describe Miller and Modigliani's proposition on dividend irrelevance.

Managers are reluctant to make dividend changes that they may have to reverse.

Which of the following lists events in chronological order from earliest to latest?

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters

On January 2, Michigan Mining declared a $2-per-share quarterly dividend payable on March 9^th to stockholders of record on Friday, February 9. What is the latest date by which you could purchase the stock and still get the recently declared dividend?