Question 1

Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?

Accepted Answer

A) Its earnings become more stable. 
B) Its access to the capital markets increases. 
C) Its R&D efforts pay off, and it now has more high-return investment opportunities. 
D) Its accounts receivable decrease due to a change in its credit policy. 
E) Its stock price has increased over the last year by a greater percentage than the increase in the broad stock market averages. 
A) Its earnings become more stable. 
B) Its access to the capital markets increases. 
C) Its R&D efforts pay off, and it now has more high-return investment opportunities. 
D) Its accounts receivable decrease due to a change in its credit policy. 
E) Its stock price has increased over the last year by a greater percentage than the increase in the broad stock market averages.

Question 2

Which of the following statements is CORRECT?

Accepted Answer

A) One advantage of dividend reinvestment plans is that they enable investors to avoid paying taxes on the dividends they receive. 
B) If a company has an established clientele of investors who prefer a high dividend payout, and if management wants to keep stockholders happy, it should not follow the strict residual dividend policy. 
C) If a firm follows a strict residual dividend policy, then, holding all else constant, its dividend payout ratio will tend to rise whenever the firm's investment opportunities improve. 
D) If Congress eliminates taxes on capital gains but leaves the personal tax rate on dividends unchanged, this would motivate companies to increase their dividend payout ratios. 
E) Despite its drawbacks, following the residual dividend policy will tend to stabilize actual cash dividends, and this will make it easier for firms to attract a clientele that prefers high dividends, such as retirees. 
A) One advantage of dividend reinvestment plans is that they enable investors to avoid paying taxes on the dividends they receive. 
B) If a company has an established clientele of investors who prefer a high dividend payout, and if management wants to keep stockholders happy, it should not follow the strict residual dividend policy. 
C) If a firm follows a strict residual dividend policy, then, holding all else constant, its dividend payout ratio will tend to rise whenever the firm's investment opportunities improve. 
D) If Congress eliminates taxes on capital gains but leaves the personal tax rate on dividends unchanged, this would motivate companies to increase their dividend payout ratios. 
E) Despite its drawbacks, following the residual dividend policy will tend to stabilize actual cash dividends, and this will make it easier for firms to attract a clientele that prefers high dividends, such as retirees.

Question 3

Fauver Worldwide forecasts a capital budget of $650,000, and it wants to maintain a target capital structure of 40% debt and 60% equity.It also wants to pay a dividend of $225,000.If the company follows the residual dividend policy, how much net income must it earn to meet its capital requirements, pay the dividend, and keep the capital structure in balance?

Accepted Answer

A) $584,250 
B) $615,000 
C) $645,750 
D) $678,038 
E) $711,939 
A) $584,250 
B) $615,000 
C) $645,750 
D) $678,038 
E) $711,939

Question 4

Trenton Publishing follows a strict residual dividend policy.All else equal, which of the following factors would be most likely to lead to an increase in the firm's dividend per share?

Accepted Answer

A) The firm's net income increases. 
B) The company increases the percentage of equity in its target capital structure. 
C) The number of profitable potential projects increases. 
D) Congress lowers the tax rate on capital gains.The remainder of the tax code is not changed. 
E) Earnings are unchanged, but the firm issues new shares of common stock. 
A) The firm's net income increases. 
B) The company increases the percentage of equity in its target capital structure. 
C) The number of profitable potential projects increases. 
D) Congress lowers the tax rate on capital gains.The remainder of the tax code is not changed. 
E) Earnings are unchanged, but the firm issues new shares of common stock.

Question 5

Co.has a capital budget of $2,000,000.The company wants to maintain a target capital structure that is 35% debt and 65% equity.The company forecasts that its net income this year will be $1,800,000.If the company follows a residual dividend policy, what will be its total dividend payment?

Accepted Answer

A) $100,000 
B) $200,000 
C) $300,000 
D) $400,000 
E) $500,000 
A) $100,000 
B) $200,000 
C) $300,000 
D) $400,000 
E) $500,000

Question 6

the shape of the curve depicting a firm's WACC versus its debt ratio is more like a sharp "V", as opposed to a shallow "U", it will be easier for the firm to maintain a steady dividend in the face of varying investment opportunities or earnings from year to year.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is CORRECT?

Accepted Answer

A) When firms are deciding on the size of stock splits-say whether to declare a 2-for-1 split or a 3-for-1 split, it is best to declare the smaller one, in this case the 2-for-1 split, because then the after-split price will be higher than if the 3-for-1 split had been used. 
B) Back before the SEC was created in the 1930s, companies would declare reverse splits in order to boost their stock prices.However, this was determined to be a deceptive practice, and it is illegal today. 
C) Stock splits create more administrative problems for investors than stock dividends, especially determining the tax basis of their shares when they decide to sell them, so today stock dividends are used far more often than stock splits. 
D) When a company declares a stock split, the price of the stock typically declines-by about 50% after a 2-for-1 split-and this necessarily reduces the total market value of the equity. 
E) If a firm's stock price is quite high relative to most stocks-say $500 per share-then it can declare a stock split of say 10-for-1 so as to bring the price down to something close to $50.Moreover, if the price is relatively low-say $2 per share-then it can declare a "reverse split" of say 1-for-25 so as to bring the price up to somewhere around $50 per share. 
A) When firms are deciding on the size of stock splits-say whether to declare a 2-for-1 split or a 3-for-1 split, it is best to declare the smaller one, in this case the 2-for-1 split, because then the after-split price will be higher than if the 3-for-1 split had been used. 
B) Back before the SEC was created in the 1930s, companies would declare reverse splits in order to boost their stock prices.However, this was determined to be a deceptive practice, and it is illegal today. 
C) Stock splits create more administrative problems for investors than stock dividends, especially determining the tax basis of their shares when they decide to sell them, so today stock dividends are used far more often than stock splits. 
D) When a company declares a stock split, the price of the stock typically declines-by about 50% after a 2-for-1 split-and this necessarily reduces the total market value of the equity. 
E) If a firm's stock price is quite high relative to most stocks-say $500 per share-then it can declare a stock split of say 10-for-1 so as to bring the price down to something close to $50.Moreover, if the price is relatively low-say $2 per share-then it can declare a "reverse split" of say 1-for-25 so as to bring the price up to somewhere around $50 per share.

Question 8

Myron Gordon and John Lintner believe that the required return on equity increases as the dividend payout ratio is decreased.Their argument is based on the assumption that

Accepted Answer

A) investors are indifferent between dividends and capital gains. 
B) investors require that the dividend yield and capital gains yield equal a constant. 
C) capital gains are taxed at a higher rate than dividends. 
D) investors view dividends as being less risky than potential future capital gains. 
E) investors value a dollar of expected capital gains more highly than a dollar of expected dividends because of the lower tax rate on capital gains. 
A) investors are indifferent between dividends and capital gains. 
B) investors require that the dividend yield and capital gains yield equal a constant. 
C) capital gains are taxed at a higher rate than dividends. 
D) investors view dividends as being less risky than potential future capital gains. 
E) investors value a dollar of expected capital gains more highly than a dollar of expected dividends because of the lower tax rate on capital gains.

Question 9

announcement of an increase in the cash dividend should, according to MM, lead to an increase in the price of the firm's stock.

Accepted Answer

A) True 
 B)False

Question 10

management wants to maximize its stock price, and if it believes that the dividend irrelevance theory is correct, then it must adhere to the residual distribution policy.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is CORRECT?

Accepted Answer

A) If a firm follows the residual dividend policy, then a sudden increase in the number of profitable projects is likely to reduce the firm's dividend payout. 
B) The clientele effect can explain why so many firms change their dividend policies so often. 
C) One advantage of adopting the residual dividend policy is that this policy makes it easier for corporations to develop a specific and well-identified dividend clientele. 
D) New-stock dividend reinvestment plans are similar to stock dividends because they both increase the number of shares outstanding but don't change the firm's total amount of book equity. 
E) Investors who receive stock dividends must pay taxes on the value of the new shares in the year the stock dividends are received. 
A) If a firm follows the residual dividend policy, then a sudden increase in the number of profitable projects is likely to reduce the firm's dividend payout. 
B) The clientele effect can explain why so many firms change their dividend policies so often. 
C) One advantage of adopting the residual dividend policy is that this policy makes it easier for corporations to develop a specific and well-identified dividend clientele. 
D) New-stock dividend reinvestment plans are similar to stock dividends because they both increase the number of shares outstanding but don't change the firm's total amount of book equity. 
E) Investors who receive stock dividends must pay taxes on the value of the new shares in the year the stock dividends are received.

Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?

Which of the following statements is CORRECT?

Trenton Publishing follows a strict residual dividend policy.All else equal, which of the following factors would be most likely to lead to an increase in the firm's dividend per share?

Co.has a capital budget of $2,000,000.The company wants to maintain a target capital structure that is 35% debt and 65% equity.The company forecasts that its net income this year will be $1,800,000.If the company follows a residual dividend policy, what will be its total dividend payment?

the shape of the curve depicting a firm's WACC versus its debt ratio is more like a sharp "V", as opposed to a shallow "U", it will be easier for the firm to maintain a steady dividend in the face of varying investment opportunities or earnings from year to year.

Which of the following statements is CORRECT?

Myron Gordon and John Lintner believe that the required return on equity increases as the dividend payout ratio is decreased.Their argument is based on the assumption that

announcement of an increase in the cash dividend should, according to MM, lead to an increase in the price of the firm's stock.

management wants to maximize its stock price, and if it believes that the dividend irrelevance theory is correct, then it must adhere to the residual distribution policy.

Which of the following statements is CORRECT?

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Exam 14: Dividends

Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?

Which of the following statements is CORRECT?

Trenton Publishing follows a strict residual dividend policy.All else equal, which of the following factors would be most likely to lead to an increase in the firm's dividend per share?

Co.has a capital budget of $2,000,000.The company wants to maintain a target capital structure that is 35% debt and 65% equity.The company forecasts that its net income this year will be $1,800,000.If the company follows a residual dividend policy, what will be its total dividend payment?

the shape of the curve depicting a firm's WACC versus its debt ratio is more like a sharp "V", as opposed to a shallow "U", it will be easier for the firm to maintain a steady dividend in the face of varying investment opportunities or earnings from year to year.

Which of the following statements is CORRECT?

Myron Gordon and John Lintner believe that the required return on equity increases as the dividend payout ratio is decreased.Their argument is based on the assumption that

announcement of an increase in the cash dividend should, according to MM, lead to an increase in the price of the firm's stock.

management wants to maximize its stock price, and if it believes that the dividend irrelevance theory is correct, then it must adhere to the residual distribution policy.

Which of the following statements is CORRECT?

Overview

Statements, CF, Taxes

Financial Analysis

Time Value of Money

Bonds

Risk and Return

Stocks

Financial Options

Cost of Capital

Capital Budgeting

Cash Flow and Risk

Forecasting

Valuation, Governanc

CAP Structure

Working Capital

Multinational

Filters