Question 1

If you ignore taxes and costs, a stock repurchase will:

Accepted Answer

A)  increase the total assets of the firm. 
B)  increase the earnings per share. 
C)  increase the total equity of the firm. 
D)  reduce the PE ratio more than an equivalent stock dividend. 
E)  not affect the company's total assets. 
A)  increase the total assets of the firm. 
B)  increase the earnings per share. 
C)  increase the total equity of the firm. 
D)  reduce the PE ratio more than an equivalent stock dividend. 
E)  not affect the company's total assets.

Question 2

Al owns 250 shares of M&M Enterprises and earns 12.9 percent on his investment. M&M recently stated that it will pay dividends per share of $.69 this year and $.72 next year. Al does not want any dividend income this year but does want as much dividend income as possible next year. Ignoring taxes, what will Al's total homemade dividend be next year?

Accepted Answer

A)  $352.50 
B)  $366.38 
C)  $330.50 
D)  $341.80 
E)  $374.75 
A)  $352.50 
B)  $366.38 
C)  $330.50 
D)  $341.80 
E)  $374.75

Question 3

Which one of the following is the best justification for a reverse stock split?

Accepted Answer

A)  Improve the stock's respectability 
B)  Avoid delisting 
C)  Reduce transaction costs for shareholders 
D)  Improve the stock's liquidity 
E)  Increase the par value per share 
A)  Improve the stock's respectability 
B)  Avoid delisting 
C)  Reduce transaction costs for shareholders 
D)  Improve the stock's liquidity 
E)  Increase the par value per share

Question 4

Cooper Brands has 36,000 shares of stock outstanding at a market price of $61.10 a share. The company just announced a stock split of five-for-thee. What will be the market price per share after the split?

Accepted Answer

A)  $36.66 
B)  $34.28 
C)  $61.10 
D)  $104.18 
E)  $101.83 
A)  $36.66 
B)  $34.28 
C)  $61.10 
D)  $104.18 
E)  $101.83

Question 5

On July 9, you purchased 800 shares of Blue Water stock for $32 a share. On August 4, you sold 200 shares of this stock for $33 a share. You sold an additional 200 shares on August 14 at a price of $34.50 a share. The company declared a dividend of $.76 per share on August 3 to holders of record as of Monday, August 17. This dividend is payable on September 15. How much dividend income will you receive on September 15?

Accepted Answer

A)  $304 
B)  $418 
C)  $456 
D)  $360 
E)  $608 
A)  $304 
B)  $418 
C)  $456 
D)  $360 
E)  $608

Question 6

A one-for-four reverse stock split will increase:

Accepted Answer

A)  the par value by 25 percent. 
B)  the number of shares outstanding by 400 percent. 
C)  the market value but not affect the par value per share. 
D)  a $1 par value to $4. 
E)  a $1 par value to $5. 
A)  the par value by 25 percent. 
B)  the number of shares outstanding by 400 percent. 
C)  the market value but not affect the par value per share. 
D)  a $1 par value to $4. 
E)  a $1 par value to $5.

Question 7

Water Mills has a market value equal to its book value. Currently, the company has excess cash of $1,368, other assets of $35,807, and equity valued at $23,750. There are 2,500 shares of stock outstanding and net income is $470. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase?

Accepted Answer

A)  $.19 
B)  $.33 
C)  $.26 
D)  $.08 
E)  $.13 
A)  $.19 
B)  $.33 
C)  $.26 
D)  $.08 
E)  $.13

Question 8

HJ Corporation has excess cash and has opted to buy some of its outstanding shares. What is this process of buying called?

Accepted Answer

A)  Stock dividend 
B)  Stock split 
C)  Stock repurchase 
D)  Reverse stock split 
E)  Stock repeal 
A)  Stock dividend 
B)  Stock split 
C)  Stock repurchase 
D)  Reverse stock split 
E)  Stock repeal

Question 9

The Peace River Corporation has 52,000 shares of stock outstanding at a market price of $41 a share. The company has just announced a stock split of five-for-three. How many shares of stock will be outstanding after the split?

Accepted Answer

A)  66,667 shares 
B)  31,200 shares 
C)  52,000 shares 
D)  86,667 shares 
E)  62,400 shares 
A)  66,667 shares 
B)  31,200 shares 
C)  52,000 shares 
D)  86,667 shares 
E)  62,400 shares

Question 10

Which one of the following dates is used to determine the names of shareholders who will receive a dividend payment?

Accepted Answer

A)  Ex-rights date 
B)  Ex-dividend date 
C)  Date of record 
D)  Date of payment 
E)  Declaration date 
A)  Ex-rights date 
B)  Ex-dividend date 
C)  Date of record 
D)  Date of payment 
E)  Declaration date

Question 11

Green Roof Motels has more cash on hand than its operations require. Thus, it has decided to pay out some of its earnings in the form of cash to its shareholders. What are these payments to shareholders called?

Accepted Answer

A)  Dividends 
B)  Stock payments 
C)  Repurchases 
D)  Payments-in-kind 
E)  Stock splits 
A)  Dividends 
B)  Stock payments 
C)  Repurchases 
D)  Payments-in-kind 
E)  Stock splits

Question 12

An investor is more likely to prefer a high dividend payout if that investor:

Accepted Answer

A)  has a high marginal tax rate on dividends. 
B)  is a corporation. 
C)  pays a higher tax rate than the dividend payer. 
D)  does not require additional cash flows. 
E)  pays taxes on dividends but not on capital gains. 
A)  has a high marginal tax rate on dividends. 
B)  is a corporation. 
C)  pays a higher tax rate than the dividend payer. 
D)  does not require additional cash flows. 
E)  pays taxes on dividends but not on capital gains.

Question 13

Plyler Cabinets declared a dividend of $1.32 per share on May 30 to holders of record on Monday, June 12. The dividend is payable on June 16. Sara purchased 300 shares of this stock on Thursday, June 8. How much dividend income will she receive on June 12 from these shares?

Accepted Answer

A)  $0 
B)  $396 
C)  $167 
D)  $198 
E)  $132 
A)  $0 
B)  $396 
C)  $167 
D)  $198 
E)  $132

Question 14

The Turtle Cave currently has 15,000 shares of stock outstanding that sell for $31 per share. Assume no market imperfections or tax effects exist. What will be the new share price if the firm declares a stock dividend of 10 percent?

Accepted Answer

A)  $32.17 
B)  $28.18 
C)  $29.47 
D)  $34.10 
E)  $30.30 
A)  $32.17 
B)  $28.18 
C)  $29.47 
D)  $34.10 
E)  $30.30

Question 15

The Mining Co. has 25,000 shares of stock outstanding. The current market value of the firm is $789,000. The company has retained earnings of $407,000, capital in excess of par value of $229,000, and a common stock account value of $25,000. The company is planning a reverse stock split of two-for-three. What will be the par value per share after the split?

Accepted Answer

A)  $.50 
B)  $.33 
C)  $1.00 
D)  $2.50 
E)  $1.50 
A)  $.50 
B)  $.33 
C)  $1.00 
D)  $2.50 
E)  $1.50

Question 16

The common stock of Gillen Entertainment is selling for $47 a share. The firm has a book value of $487,400 and a market value of $938,000. How many shares of stock will be outstanding if the firm does a stock split of three-for-two?

Accepted Answer

A)  26,815 
B)  15,555 
C)  27,183 
D)  29,936 
E)  32,211 
A)  26,815 
B)  15,555 
C)  27,183 
D)  29,936 
E)  32,211

Question 17

A company wants to maintain a stock price around $16 a share. Due to a recent market downturn, the stock is currently selling for $6 a share. The company should consider a ________ stock split.

Accepted Answer

A)  3-for-1 
B)  4-for-1 
C)  1-for-3 reverse 
D)  1-for-4 reverse 
E)  1-for-5 reverse 
A)  3-for-1 
B)  4-for-1 
C)  1-for-3 reverse 
D)  1-for-4 reverse 
E)  1-for-5 reverse

Question 18

Which one of the following statements related to stock repurchases is correct?

Accepted Answer

A)  U.S. industrial firms have increased their stock repurchases every year for each of the past 20 years. 
B)  The tax law change in May 2003 led to a huge increase in stock repurchases and a reduction in dividend payments. 
C)  A tender offer indicates that a company is willing and able to purchase as many shares as shareholders wish to sell. 
D)  All stock repurchases must be identified as such to the selling party. 
E)  Stock repurchases can be a relatively tax-efficient method of distributing cash to shareholders. 
A)  U.S. industrial firms have increased their stock repurchases every year for each of the past 20 years. 
B)  The tax law change in May 2003 led to a huge increase in stock repurchases and a reduction in dividend payments. 
C)  A tender offer indicates that a company is willing and able to purchase as many shares as shareholders wish to sell. 
D)  All stock repurchases must be identified as such to the selling party. 
E)  Stock repurchases can be a relatively tax-efficient method of distributing cash to shareholders.

Question 19

Which type of dividend is considered to be a one-time event that will not be repeated?

Accepted Answer

A)  Stock dividend 
B)  Extra cash dividend 
C)  Partial liquidating dividend 
D)  Special dividend 
E)  Regular cash dividend 
A)  Stock dividend 
B)  Extra cash dividend 
C)  Partial liquidating dividend 
D)  Special dividend 
E)  Regular cash dividend

Exam 17: Dividends and Payout Policy

If you ignore taxes and costs, a stock repurchase will:

Which one of the following is the best justification for a reverse stock split?

Cooper Brands has 36,000 shares of stock outstanding at a market price of $61.10 a share. The company just announced a stock split of five-for-thee. What will be the market price per share after the split?

A one-for-four reverse stock split will increase:

HJ Corporation has excess cash and has opted to buy some of its outstanding shares. What is this process of buying called?

The Peace River Corporation has 52,000 shares of stock outstanding at a market price of $41 a share. The company has just announced a stock split of five-for-three. How many shares of stock will be outstanding after the split?

Which one of the following dates is used to determine the names of shareholders who will receive a dividend payment?

Green Roof Motels has more cash on hand than its operations require. Thus, it has decided to pay out some of its earnings in the form of cash to its shareholders. What are these payments to shareholders called?

An investor is more likely to prefer a high dividend payout if that investor:

Plyler Cabinets declared a dividend of $1.32 per share on May 30 to holders of record on Monday, June 12. The dividend is payable on June 16. Sara purchased 300 shares of this stock on Thursday, June 8. How much dividend income will she receive on June 12 from these shares?

The Turtle Cave currently has 15,000 shares of stock outstanding that sell for $31 per share. Assume no market imperfections or tax effects exist. What will be the new share price if the firm declares a stock dividend of 10 percent?

The common stock of Gillen Entertainment is selling for $47 a share. The firm has a book value of $487,400 and a market value of $938,000. How many shares of stock will be outstanding if the firm does a stock split of three-for-two?

A company wants to maintain a stock price around $16 a share. Due to a recent market downturn, the stock is currently selling for $6 a share. The company should consider a ________ stock split.

Which one of the following statements related to stock repurchases is correct?

Which type of dividend is considered to be a one-time event that will not be repeated?

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working with Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons from Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Short Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters