Question 1

A dividend clientele effect assumes that:

Accepted Answer

A) investors prefer higher rather than lower dividends. 
B) shareholders are indifferent regarding dividends. 
C) investors have specific dividend preferences. 
D) investors are making "homemade" dividends. 
A) investors prefer higher rather than lower dividends. 
B) shareholders are indifferent regarding dividends. 
C) investors have specific dividend preferences. 
D) investors are making "homemade" dividends.

Question 2

A firm with 2,000 outstanding shares selling for $10 each does not have the cash to pay its dividend.In an ideal MM world, how many new shares must be sold and at what price to pay a $2 dividend per share to old shareholders?

Accepted Answer

A) sell 2,000 shares at a price of $2 each 
B) sell 667 shares at a price of $6 each 
C) sell 500 shares at a price of $8 each 
D) sell 400 shares at a price of $10 each 
A) sell 2,000 shares at a price of $2 each 
B) sell 667 shares at a price of $6 each 
C) sell 500 shares at a price of $8 each 
D) sell 400 shares at a price of $10 each

Question 3

After the payment of a 25% stock dividend, an investor has 500 shares of stock and $400.What did the investor have prior to the stock dividend?

Accepted Answer

A) 300 shares of stock 
B) 400 shares of stock and $400 
C) 400 shares of stock 
D) 625 shares of stock and $400 
A) 300 shares of stock 
B) 400 shares of stock and $400 
C) 400 shares of stock 
D) 625 shares of stock and $400

Question 4

When a corporation engages in a 10% stock repurchase, it:

Accepted Answer

A) offers shareholders 110 shares for every 100 they currently own. 
B) purchases for cash 10% of the outstanding shares. 
C) sells treasury stock at a 10% discount to investors. 
D) purchases 10% of previously issued stock dividends. 
A) offers shareholders 110 shares for every 100 they currently own. 
B) purchases for cash 10% of the outstanding shares. 
C) sells treasury stock at a 10% discount to investors. 
D) purchases 10% of previously issued stock dividends.

Question 5

An investor owns 5,000 shares, which is 1% of a corporation's outstanding stock before a stock repurchase.The investor did not sell any of his stock during the 25,000 share repurchase.Which of the following statements is correct?

Accepted Answer

A) the investor still owns 1% of the corporation. 
B) the stock's price is likely to drop by 5%. 
C) the investor owns more than 1% of the corporation. 
D) the investor now has 5,250 shares. 
A) the investor still owns 1% of the corporation. 
B) the stock's price is likely to drop by 5%. 
C) the investor owns more than 1% of the corporation. 
D) the investor now has 5,250 shares.

Question 6

If a firm declares a stock dividend of 10%, it would send each shareholder one additional share for each ten that are currently owned.

Accepted Answer

A) True 
 B)False

Question 7

An increase in dividends might not increase price and may actually decrease stock price if:

Accepted Answer

A) the dividend increase cannot be sustained. 
B) the firm does not maintain an exact dividend payout ratio. 
C) the firm has too much retained earnings. 
D) markets are weak-form efficient. 
A) the dividend increase cannot be sustained. 
B) the firm does not maintain an exact dividend payout ratio. 
C) the firm has too much retained earnings. 
D) markets are weak-form efficient.

Question 8

An investor who currently holds 582 shares because he created a dividend by selling 18 shares has done the equivalent of a:

Accepted Answer

A) 3% increase in dividend yield. 
B) 3.5% increase in dividend yield. 
C) 3% decrease in dividend yield. 
D) 3% increase in ownership of the company. 
A) 3% increase in dividend yield. 
B) 3.5% increase in dividend yield. 
C) 3% decrease in dividend yield. 
D) 3% increase in ownership of the company.

Question 9

A company may choose to repurchase stock rather than pay out dividends when:

Accepted Answer

A) the company wants to distribute excess cash to its investors. 
B) the company wants to give its investors a bumper dividend. 
C) the company does not want to make a commitment to distribute more cash. 
D) the company does not want to embark on unprofitable ventures. 
A) the company wants to distribute excess cash to its investors. 
B) the company wants to give its investors a bumper dividend. 
C) the company does not want to make a commitment to distribute more cash. 
D) the company does not want to embark on unprofitable ventures.

Question 10

Briefly discuss each of the chronological "steps" in the process of paying a dividend.

Accepted Answer

The first step in the process of paying

Question 11

In a three for two stock split for a company that previously had 1 million shares outstanding selling at $100 per share and a total market value of $100 million, which of the following is true:

Accepted Answer

A) the number of outstanding shares will drop to 666,666, and the stock price will increase to $150. 
B) the number of outstanding shares will increase to 1.5 million, and the stock price will drop to $66.67. 
C) the number of outstanding shares will increase to 1.5 million, and the stock price will rise to $133.33. 
D) the market value of the firm will increase. 
A) the number of outstanding shares will drop to 666,666, and the stock price will increase to $150. 
B) the number of outstanding shares will increase to 1.5 million, and the stock price will drop to $66.67. 
C) the number of outstanding shares will increase to 1.5 million, and the stock price will rise to $133.33. 
D) the market value of the firm will increase.

Question 12

Corporations may have a legitimate preference for dividends over capital gains because:

Accepted Answer

A) capital gains have a 50% tax rate. 
B) dividends received by corporations are not taxable. 
C) 30% of dividends received by corporations are exempt from taxation. 
D) 70% of dividends received by corporations are exempt from taxation. 
A) capital gains have a 50% tax rate. 
B) dividends received by corporations are not taxable. 
C) 30% of dividends received by corporations are exempt from taxation. 
D) 70% of dividends received by corporations are exempt from taxation.

Question 13

What would you expect to happen to the price of a share of stock on the day it goes ex-dividend? Ignore tax.the price should:

Accepted Answer

A) increase by the amount of the dividend. 
B) decrease by the amount of the dividend. 
C) decrease by one-half the amount of the dividend. 
D) remain constant. 
A) increase by the amount of the dividend. 
B) decrease by the amount of the dividend. 
C) decrease by one-half the amount of the dividend. 
D) remain constant.

Question 14

With respect to the proposition that dividend policy does not matter, in order to raise an additional $5,600 in cash by issuing stock, the stock sold must be worth:

Accepted Answer

A) more than $5,600. 
B) $2,800. 
C) $5,600. 
D) need to know the number of shares issued to calculate. 
A) more than $5,600. 
B) $2,800. 
C) $5,600. 
D) need to know the number of shares issued to calculate.

Question 15

Ignoring the idealized world of MM, why might a higher dividend payout ratio be considered detrimental to firm value?

Accepted Answer

Investors are ultimately interested in a

Question 16

Store Wide Inc.'s shares are selling for $40 per share.Determine the new price per share, if the company a 5 for 4 stock split.

Accepted Answer

A) $32 
B) $36 
C) $40 
D) $44 
A) $32 
B) $36 
C) $40 
D) $44

Question 17

How will your investment in Acme Corp.change if you currently own 100 shares valued at $10 each and Acme has just declared a 10% stock dividend? Before the stock dividend there were 2,000 shares outstanding.

Accepted Answer

Before the stock dividend your ownership

Question 18

Board of directors may be legally restricted in their declaration of dividends if:

Accepted Answer

A) the cash must be borrowed for the dividend payment. 
B) dividends have increased substantially over a short period of time. 
C) the dividend would create a situation of insolvency. 
D) the stock is selling at a low relative price. 
A) the cash must be borrowed for the dividend payment. 
B) dividends have increased substantially over a short period of time. 
C) the dividend would create a situation of insolvency. 
D) the stock is selling at a low relative price.

Question 19

Which of the following would you expect to have more impact on a dividend-based-stock-valuation model?

Accepted Answer

A) special dividend 
B) regular dividend 
C) extra dividend 
D) stock dividend 
A) special dividend 
B) regular dividend 
C) extra dividend 
D) stock dividend

Question 20

Canadian corporations are likely to prefer dividends over capital gains on their own investments.

Accepted Answer

A) True 
 B)False

Exam 18: Payout Policy

A dividend clientele effect assumes that:

A firm with 2,000 outstanding shares selling for $10 each does not have the cash to pay its dividend.In an ideal MM world, how many new shares must be sold and at what price to pay a $2 dividend per share to old shareholders?

After the payment of a 25% stock dividend, an investor has 500 shares of stock and $400.What did the investor have prior to the stock dividend?

When a corporation engages in a 10% stock repurchase, it:

An investor owns 5,000 shares, which is 1% of a corporation's outstanding stock before a stock repurchase.The investor did not sell any of his stock during the 25,000 share repurchase.Which of the following statements is correct?

If a firm declares a stock dividend of 10%, it would send each shareholder one additional share for each ten that are currently owned.

An increase in dividends might not increase price and may actually decrease stock price if:

An investor who currently holds 582 shares because he created a dividend by selling 18 shares has done the equivalent of a:

A company may choose to repurchase stock rather than pay out dividends when:

Briefly discuss each of the chronological "steps" in the process of paying a dividend.

In a three for two stock split for a company that previously had 1 million shares outstanding selling at $100 per share and a total market value of $100 million, which of the following is true:

Corporations may have a legitimate preference for dividends over capital gains because:

What would you expect to happen to the price of a share of stock on the day it goes ex-dividend? Ignore tax.the price should:

With respect to the proposition that dividend policy does not matter, in order to raise an additional $5,600 in cash by issuing stock, the stock sold must be worth:

Ignoring the idealized world of MM, why might a higher dividend payout ratio be considered detrimental to firm value?

Store Wide Inc.'s shares are selling for $40 per share.Determine the new price per share, if the company a 5 for 4 stock split.

How will your investment in Acme Corp.change if you currently own 100 shares valued at $10 each and Acme has just declared a 10% stock dividend? Before the stock dividend there were 2,000 shares outstanding.

Board of directors may be legally restricted in their declaration of dividends if:

Which of the following would you expect to have more impact on a dividend-based-stock-valuation model?

Canadian corporations are likely to prefer dividends over capital gains on their own investments.

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters