Question 1

A firm's dividend policy involves a trade-off between:

Accepted Answer

A) growth versus no growth in investment. 
B) high share price versus low share price. 
C) internal versus external financing of investment. 
D) a large asset base and a small asset base. 
A) growth versus no growth in investment. 
B) high share price versus low share price. 
C) internal versus external financing of investment. 
D) a large asset base and a small asset base.

Question 2

Which of the following statements regarding stock dividends and stock splits is true:

Accepted Answer

A) a two-for-one stock split is equivalent to a 50% stock dividend. 
B) a three-for-one stock split is equivalent to a 66% stock dividend. 
C) a three-for-two stock split is equivalent to a 100% stock dividend. 
D) a 50% stock dividend is equivalent to a three-for-two stock split. 
A) a two-for-one stock split is equivalent to a 50% stock dividend. 
B) a three-for-one stock split is equivalent to a 66% stock dividend. 
C) a three-for-two stock split is equivalent to a 100% stock dividend. 
D) a 50% stock dividend is equivalent to a three-for-two stock split.

Question 3

When the firm has a high retention ratio, thus paying low dividends, the dividend is a by-product of what kind of decision?

Accepted Answer

A) borrowing 
B) debt policy 
C) financing 
D) capital budgeting 
A) borrowing 
B) debt policy 
C) financing 
D) capital budgeting

Question 4

MM's proposition concerning dividends contends that shareholders will:

Accepted Answer

A) offer higher prices for higher dividend payouts. 
B) not offer higher prices for higher dividend payouts. 
C) offer higher prices for lower dividend payouts. 
D) only purchase stocks that have high dividend payouts. 
A) offer higher prices for higher dividend payouts. 
B) not offer higher prices for higher dividend payouts. 
C) offer higher prices for lower dividend payouts. 
D) only purchase stocks that have high dividend payouts.

Question 5

A two-for-one stock split will result in:

Accepted Answer

A) the firm acquiring new assets. 
B) a decrease in the stock price, but an increase in shareholder wealth. 
C) an increase in the stock price, and an increase in shareholder wealth. 
D) a decrease in the stock price, and no change to shareholder wealth. 
A) the firm acquiring new assets. 
B) a decrease in the stock price, but an increase in shareholder wealth. 
C) an increase in the stock price, and an increase in shareholder wealth. 
D) a decrease in the stock price, and no change to shareholder wealth.

Question 6

Which of the following is the order in which key dividend dates occur:

Accepted Answer

A) declaration, with-dividend, record, ex-dividend, payment. 
B) declaration, with-dividend, ex-dividend, record, payment. 
C) record, declaration, with-dividend, payment, ex-dividend. 
D) with-dividend, ex-dividend, record, declaration, payment. 
A) declaration, with-dividend, record, ex-dividend, payment. 
B) declaration, with-dividend, ex-dividend, record, payment. 
C) record, declaration, with-dividend, payment, ex-dividend. 
D) with-dividend, ex-dividend, record, declaration, payment.

Question 7

When a company expects to maintain its dividend payments in the future, it will issue:

Accepted Answer

A) regular dividends. 
B) special dividends. 
C) stock dividends. 
D) extra dividends. 
A) regular dividends. 
B) special dividends. 
C) stock dividends. 
D) extra dividends.

Question 8

MM's dividend irrelevance proposition assumes that dividends do not affect investment or borrowing policies.

Accepted Answer

A) True 
 B)False

Question 9

Investors require an after-tax rate of return of 9% on their stock investments.The tax rate on dividends is 26%, while capital gains escape taxation.A firm will pay $2.50 per share in dividends one year from now, after which the stock is expected to be at a price of $30.Determine the current stock price and the expected before tax rate of return for a one-year holding period.
 $$\begin{array}{l}
\begin{array} { | l | r | } 
\hline\text { DATA }\
\hline \text { Investor return } & 9 \% \
\hline \text { Dividend amount } & \$ 2.50 \
\hline \text { Tax rate } & 20 \% \
\hline \text { Future price prediction } & \$ 30.00 \
\hline
\end{array}
\end{array}$$

Accepted Answer

The answer of Investors require an after-tax rate of return...

Question 10

A dividend is declared on January 1, has a with-dividend date of January 19, and a record date of January 26.Which of the following shareholders will not receive the dividend?

Accepted Answer

A) A shareholder who purchases on December 31. 
B) A shareholder who purchases on January 10. 
C) A shareholder who purchases on January 19. 
D) A shareholder who purchases on January 24. 
A) A shareholder who purchases on December 31. 
B) A shareholder who purchases on January 10. 
C) A shareholder who purchases on January 19. 
D) A shareholder who purchases on January 24.

Question 11

Managers have been characterized as reluctant to increase dividends if:

Accepted Answer

A) dividends were increased in the preceding year. 
B) earnings have permanently increased. 
C) the dividend increase cannot be sustained. 
D) the dividend payout ratio exceeds 20%. 
A) dividends were increased in the preceding year. 
B) earnings have permanently increased. 
C) the dividend increase cannot be sustained. 
D) the dividend payout ratio exceeds 20%.

Question 12

Investors forego the right to the dividend if they purchase after the cum-dividend date.

Accepted Answer

A) True 
 B)False

Question 13

Research has shown all of the following to be true of the way corporations determine dividends except:

Accepted Answer

A) firms have short-run target payout ratios. 
B) firms have long-run target payout ratios. 
C) the focus is more on dividend changes rather than absolute dividends. 
D) managers try to avoid dividend changes that may need to be reversed. 
A) firms have short-run target payout ratios. 
B) firms have long-run target payout ratios. 
C) the focus is more on dividend changes rather than absolute dividends. 
D) managers try to avoid dividend changes that may need to be reversed.

Question 14

Jackson Corporation paid a dividend of $1.50 per share.It forecasted a $2.50 per share in earnings and had a stock price of $45.Determine the stock price if Cormex declared a 15% stock dividend.

Accepted Answer

A) $33.88 
B) $36.21 
C) $39.13 
D) $42.28 
A) $33.88 
B) $36.21 
C) $39.13 
D) $42.28

Question 15

A 100% stock dividend results in a doubling of the number of outstanding shares, but they do not affect the company's assets, profits, or total value.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following processes would not be expected to have an effect on book value of per share?

Accepted Answer

A) dividend declaration and payment 
B) stock repurchase 
C) stock dividend 
D) stock split 
A) dividend declaration and payment 
B) stock repurchase 
C) stock dividend 
D) stock split

Question 17

High dividends may be used as __________ of a firm's __________.

Accepted Answer

A) an indicator; high capital gains 
B) an indicator; tax liability 
C) a signal; return on equity 
D) a signal; good prospects 
A) an indicator; high capital gains 
B) an indicator; tax liability 
C) a signal; return on equity 
D) a signal; good prospects

Question 18

You now own 84 shares of XYZ stock, which is selling for $40 each, 4 of which you just received from the XYZ corporation.XYZ has declared a:

Accepted Answer

A) stock dividend of 5%. 
B) cash dividend of $4. 
C) stock dividend of 4%. 
D) cash dividend of $160. 
A) stock dividend of 5%. 
B) cash dividend of $4. 
C) stock dividend of 4%. 
D) cash dividend of $160.

Question 19

Xavier Corporation has declared a $4 per share in dividends.The federal tax rate is 26% and the provincial tax rate is 13.39%.Federal and Provincial tax credits are 13.33% and 5.1% respectively on the grossed up amount of the dividend.The gross up amount is 25%.Determine the after tax dividend income.

Accepted Answer

The answer of Xavier Corporation has declared a $4 per...

Question 20

An investor owns 300 shares of stock currently selling for $70 per share.What should the investor expect to have after the stock declares a three-for-two split?

Accepted Answer

A) 200 shares selling for $93.10 each 
B) 200 shares selling for $105.00 each 
C) 450 shares selling for $46.67 each 
D) 450 shares selling for $93.10 each 
A) 200 shares selling for $93.10 each 
B) 200 shares selling for $105.00 each 
C) 450 shares selling for $46.67 each 
D) 450 shares selling for $93.10 each

Exam 18: Payout Policy

A firm's dividend policy involves a trade-off between:

Which of the following statements regarding stock dividends and stock splits is true:

When the firm has a high retention ratio, thus paying low dividends, the dividend is a by-product of what kind of decision?

MM's proposition concerning dividends contends that shareholders will:

A two-for-one stock split will result in:

Which of the following is the order in which key dividend dates occur:

When a company expects to maintain its dividend payments in the future, it will issue:

MM's dividend irrelevance proposition assumes that dividends do not affect investment or borrowing policies.

A dividend is declared on January 1, has a with-dividend date of January 19, and a record date of January 26.Which of the following shareholders will not receive the dividend?

Managers have been characterized as reluctant to increase dividends if:

Investors forego the right to the dividend if they purchase after the cum-dividend date.

Research has shown all of the following to be true of the way corporations determine dividends except:

Jackson Corporation paid a dividend of $1.50 per share.It forecasted a $2.50 per share in earnings and had a stock price of $45.Determine the stock price if Cormex declared a 15% stock dividend.

A 100% stock dividend results in a doubling of the number of outstanding shares, but they do not affect the company's assets, profits, or total value.

Which of the following processes would not be expected to have an effect on book value of per share?

High dividends may be used as __________ of a firm's __________.

You now own 84 shares of XYZ stock, which is selling for $40 each, 4 of which you just received from the XYZ corporation.XYZ has declared a:

An investor owns 300 shares of stock currently selling for $70 per share.What should the investor expect to have after the stock declares a three-for-two split?

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

High dividends may be used as of a firm's .