Question 1

Suppose a firm pays total dividends of $489,000 out of net income of $5 million. What would the firm's retention ratio be?

Accepted Answer

A)  9.78 percent 
B)  90.22 percent 
C)  81.24 percent 
D)  19.78 percent 
A)  9.78 percent 
B)  90.22 percent 
C)  81.24 percent 
D)  19.78 percent

Question 2

Suppose a firm has a retention ratio of 10 percent, net income of $40 million, and 4 million shares outstanding. What would be the dividend per share paid out on the firm's stock?

Accepted Answer

A)  $0.10 
B)  $1.00 
C)  $9.00 
D)  $10.00 
A)  $0.10 
B)  $1.00 
C)  $9.00 
D)  $10.00

Question 3

Suppose a firm has a dividend payout ratio of 65 percent and net income of $5 million. What would be the annual addition to retained earnings?

Accepted Answer

A)  $3,250,000 
B)  $5,250,000 
C)  $1,750,000 
D)  $750,000 
A)  $3,250,000 
B)  $5,250,000 
C)  $1,750,000 
D)  $750,000

Question 4

Which of the following is a repurchase where the firm simply buys shares of its own stock on the stock market just like any other investor would?

Accepted Answer

A)  Fixed-price tender offer 
B)  Fixed-duration tender offer 
C)  Fixed-shares tender offer 
D)  Open-market stock repurchase 
A)  Fixed-price tender offer 
B)  Fixed-duration tender offer 
C)  Fixed-shares tender offer 
D)  Open-market stock repurchase

Question 5

Suppose a firm pays total dividends of $35,000 out of net income of $50,000. What would the firm's retention ratio be?

Accepted Answer

A)  0.30 percent 
B)  0.70 percent 
C)  30.00 percent 
D)  70.00 percent 
A)  0.30 percent 
B)  0.70 percent 
C)  30.00 percent 
D)  70.00 percent

Question 6

Suppose a firm has a dividend payout ratio of 25 percent and net income of $5 million. What would be the annual addition to retained earnings?

Accepted Answer

A)  $3,750,000 
B)  $5,250,000 
C)  $1,750,000 
D)  $750,000 
A)  $3,750,000 
B)  $5,250,000 
C)  $1,750,000 
D)  $750,000

Question 7

Which of the following is the date the firm sends dividends out to the shareholders?

Accepted Answer

A)  Declaration date 
B)  Ex-dividend date 
C)  Record date 
D)  Payment date 
A)  Declaration date 
B)  Ex-dividend date 
C)  Record date 
D)  Payment date

Question 8

Suppose a firm has a retention ratio of 40 percent and net income of $10 million. How much does it pay out in dividends?

Accepted Answer

A)  $4 million 
B)  $6 million 
C)  $10 million 
D)  $16.67 million 
A)  $4 million 
B)  $6 million 
C)  $10 million 
D)  $16.67 million

Question 9

Balloons, Inc. normally pays a annual dividend. The last such dividend paid was $0.80, all future annual dividends are expected to grow at 8 percent, and the firm faces a required rate of return on equity of 13 percent. If the firm just announced that the next dividend will be an extraordinary dividend of $2.00 per share that is not expected to affect any other future dividends, what should the stock price be?

Accepted Answer

A)  $16.00 
B)  $17.01 
C)  $17.28 
D)  $18.29 
A)  $16.00 
B)  $17.01 
C)  $17.28 
D)  $18.29

Question 10

Which of the following is the tendency of investors to find a payout policy that they prefer and stick with it?

Accepted Answer

A)  Bird-in-the-hand theory 
B)  Clientele effect policy 
C)  Residual dividend model 
D)  Dividend irrelevance theorem 
A)  Bird-in-the-hand theory 
B)  Clientele effect policy 
C)  Residual dividend model 
D)  Dividend irrelevance theorem

Question 11

CJ Corp. is expected to pay a dividend of $10.00 per year indefinitely. If the appropriate rate of return on this stock is 15 percent per year, and the stock consistently goes ex-dividend 25 days before the dividend payment date, what will be the expected minimum price in light of the dividend payment logistics?

Accepted Answer

A)  $45.66 
B)  $66.03 
C)  $66.67 
D)  $75.93 
A)  $45.66 
B)  $66.03 
C)  $66.67 
D)  $75.93

Question 12

Suppose that a firm always announces a yearly dividend at the end of the first quarter of the year, but then pays the dividend out as four equal quarterly payments. If the next such "annual" dividend has been announced as $1, it is exactly one quarter until the first quarterly dividend from that $1, the effective annual required rate of return on the company's stock is 10 percent, and all future "annual" dividends are expected to grow at 5 percent per year indefinitely, how much will this stock be worth?

Accepted Answer

A)  $19.79 
B)  $20.74 
C)  $21.26 
D)  $21.37 
A)  $19.79 
B)  $20.74 
C)  $21.26 
D)  $21.37

Question 13

Suppose that a firm always announces a yearly dividend at the end of the first quarter of the year, but then pays the dividend out as four equal quarterly payments. If the next such "annual" dividend has been announced as $5, it is exactly one quarter until the first quarterly dividend from that $5, the effective annual required rate of return on the company's stock is 14 percent, and all future "annual" dividends are expected to grow at 4 percent per year indefinitely, how much will this stock be worth?

Accepted Answer

A)  $17.10 
B)  $50.00 
C)  $52.55 
D)  $57.00 
A)  $17.10 
B)  $50.00 
C)  $52.55 
D)  $57.00

Question 14

Suppose a firm pays total dividends of $125,000 out of net income of $500,000. What would the firm's retention ratio be?

Accepted Answer

A)  22.00 percent 
B)  69.00 percent 
C)  25.00 percent 
D)  75.00 percent 
A)  22.00 percent 
B)  69.00 percent 
C)  25.00 percent 
D)  75.00 percent

Question 15

Candy Town, Inc. normally pays a annual dividend. The last such dividend paid was $2.00, all future annual dividends are expected to grow at 10 percent, and the firm faces a required rate of return on equity of 15 percent. If the firm just announced that the next dividend will be an extraordinary dividend of $5.00 per share that is not expected to affect any other future dividends, what should the stock price be?

Accepted Answer

A)  $40.00 
B)  $42.44 
C)  $44.00 
D)  $46.43 
A)  $40.00 
B)  $42.44 
C)  $44.00 
D)  $46.43

Question 16

Cups N Saucers, Inc. normally pays a annual dividend. The last such dividend paid was $1.00, all future annual dividends are expected to grow at 7 percent, and the firm faces a required rate of return on equity of 15 percent. If the firm just announced that the next dividend will be an extraordinary dividend of $3.00 per share that is not expected to affect any other future dividends, what should the stock price be?

Accepted Answer

A)  $12.00 
B)  $13.38 
C)  $14.18 
D)  $15.05 
A)  $12.00 
B)  $13.38 
C)  $14.18 
D)  $15.05

Question 17

A pro-rata distribution of additional shares of stock to the current owners of the stock is which of the following?

Accepted Answer

A)  Stock dividend 
B)  Stock split 
C)  Payment date 
D)  Ex-dividend 
A)  Stock dividend 
B)  Stock split 
C)  Payment date 
D)  Ex-dividend

Question 18

JEN Corp. is expected to pay a dividend of $2.00 per year indefinitely. If the appropriate rate of return on this stock is 12 percent per year, and the stock consistently goes ex-dividend 25 days before the dividend payment date, what will be the expected maximum price in light of the dividend payment logistics?

Accepted Answer

A)  $1.14 
B)  $16.54 
C)  $16.67 
D)  $18.52 
A)  $1.14 
B)  $16.54 
C)  $16.67 
D)  $18.52

Question 19

What important tax-based reason suggests why some investors might prefer capital gains?

Accepted Answer

A)  Investors pay taxes only on dividends, not on capital gains. 
B)  Investors pay capital gains taxes as their stock appreciates, not at the time of sale, so they will be indifferent to selling the stock. 
C)  Investors who don't need or want any cash will not accept their dividend and they therefore will not incur any obligation to pay taxes. 
D)  Investors who don't need or want any cash will not sell their stock and they therefore will not incur any obligation to pay taxes. 
A)  Investors pay taxes only on dividends, not on capital gains. 
B)  Investors pay capital gains taxes as their stock appreciates, not at the time of sale, so they will be indifferent to selling the stock. 
C)  Investors who don't need or want any cash will not accept their dividend and they therefore will not incur any obligation to pay taxes. 
D)  Investors who don't need or want any cash will not sell their stock and they therefore will not incur any obligation to pay taxes.

Question 20

Which of the following statements is correct?

Accepted Answer

A)  The Dutch auction relies on the firm's shareholders to value the stock. 
B)  The Dutch auction tends to attract arbitrageurs who often drive up the price. 
C)  The Dutch auction offers the possibility that the firm will pay more than the maximum price of the specified range. 
D)  All of the options are correct. 
A)  The Dutch auction relies on the firm's shareholders to value the stock. 
B)  The Dutch auction tends to attract arbitrageurs who often drive up the price. 
C)  The Dutch auction offers the possibility that the firm will pay more than the maximum price of the specified range. 
D)  All of the options are correct.

Suppose a firm pays total dividends of $489,000 out of net income of $5 million. What would the firm's retention ratio be?

Suppose a firm has a retention ratio of 10 percent, net income of $40 million, and 4 million shares outstanding. What would be the dividend per share paid out on the firm's stock?

Suppose a firm has a dividend payout ratio of 65 percent and net income of $5 million. What would be the annual addition to retained earnings?

Which of the following is a repurchase where the firm simply buys shares of its own stock on the stock market just like any other investor would?

Suppose a firm pays total dividends of $35,000 out of net income of $50,000. What would the firm's retention ratio be?

Suppose a firm has a dividend payout ratio of 25 percent and net income of $5 million. What would be the annual addition to retained earnings?

Which of the following is the date the firm sends dividends out to the shareholders?

Suppose a firm has a retention ratio of 40 percent and net income of $10 million. How much does it pay out in dividends?

Which of the following is the tendency of investors to find a payout policy that they prefer and stick with it?

Suppose a firm pays total dividends of $125,000 out of net income of $500,000. What would the firm's retention ratio be?

A pro-rata distribution of additional shares of stock to the current owners of the stock is which of the following?

What important tax-based reason suggests why some investors might prefer capital gains?

Which of the following statements is correct?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 17: Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Suppose a firm pays total dividends of $489,000 out of net income of $5 million. What would the firm's retention ratio be?

Suppose a firm has a retention ratio of 10 percent, net income of $40 million, and 4 million shares outstanding. What would be the dividend per share paid out on the firm's stock?

Suppose a firm has a dividend payout ratio of 65 percent and net income of $5 million. What would be the annual addition to retained earnings?

Which of the following is a repurchase where the firm simply buys shares of its own stock on the stock market just like any other investor would?

Suppose a firm pays total dividends of $35,000 out of net income of $50,000. What would the firm's retention ratio be?

Suppose a firm has a dividend payout ratio of 25 percent and net income of $5 million. What would be the annual addition to retained earnings?

Which of the following is the date the firm sends dividends out to the shareholders?

Suppose a firm has a retention ratio of 40 percent and net income of $10 million. How much does it pay out in dividends?

Which of the following is the tendency of investors to find a payout policy that they prefer and stick with it?

Suppose a firm pays total dividends of $125,000 out of net income of $500,000. What would the firm's retention ratio be?

A pro-rata distribution of additional shares of stock to the current owners of the stock is which of the following?

What important tax-based reason suggests why some investors might prefer capital gains?

Which of the following statements is correct?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters