Question 1

A stock split will affect the stock's price while a stock dividend will not.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is not a logical justification for dividend preference (versus capital gains) in the real world?

Accepted Answer

A) institutional restrictions involving dividends. 
B) higher share prices from higher payouts. 
C) a steady source of cash without transaction costs. 
D) differing income tax rates. 
A) institutional restrictions involving dividends. 
B) higher share prices from higher payouts. 
C) a steady source of cash without transaction costs. 
D) differing income tax rates.

Question 3

Global Inc.has 240,000 shares outstanding.If the company declares a 4 for 6 reverse stock split, determine the number of shares outstanding afterwards.

Accepted Answer

A) 160,000 
B) 180,000 
C) 200,000 
D) 220,000 
A) 160,000 
B) 180,000 
C) 200,000 
D) 220,000

Question 4

Why are dividend changes rather than their absolute level perceived to be more important to managers and shareholders?

Accepted Answer

A) managers only change dividends under threatening conditions 
B) dividend changes are thought to signal future expectations 
C) MM states that the absolute level of dividends is irrelevant 
D) changes determine whether borrowing must occur 
A) managers only change dividends under threatening conditions 
B) dividend changes are thought to signal future expectations 
C) MM states that the absolute level of dividends is irrelevant 
D) changes determine whether borrowing must occur

Question 5

Corporate dividends are less volatile than corporate earnings.

Accepted Answer

A) True 
 B)False

Question 6

A corporation that has an automatic reinvestment plan:

Accepted Answer

A) forces shareholders to automatically reinvest dividends in the company. 
B) never physically pays out declared dividends. 
C) helps investors plan their investment portfolio. 
D) gives shareholders the option to automatically reinvest dividends in the company. 
A) forces shareholders to automatically reinvest dividends in the company. 
B) never physically pays out declared dividends. 
C) helps investors plan their investment portfolio. 
D) gives shareholders the option to automatically reinvest dividends in the company.

Question 7

In a two-for-one stock split, each investor would receive one additional share for each share already held.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following signals is most likely to elicit a decrease in share price?

Accepted Answer

A) a repurchase of 5% of the firm's stock 
B) an increase in the regular quarterly dividend 
C) a decrease in the regular quarterly dividend 
D) borrowing funds in order to pay a cash dividend 
A) a repurchase of 5% of the firm's stock 
B) an increase in the regular quarterly dividend 
C) a decrease in the regular quarterly dividend 
D) borrowing funds in order to pay a cash dividend

Question 9

Which statement is true concerning the one-year after-tax return on the following stocks, assuming a 40% tax rate on dividends and a 20% tax rate on capital gains: Stock A is purchased for $50, offers a 5% dividend yield, and is sold for $56; Stock B is purchased for $60, offers no dividend yield, but is sold after one year for $70.

Accepted Answer

A) Stock A's after-tax return is higher by 1.27%. 
B) Stock B's after-tax return is higher by 0.73%. 
C) Stock A's after-tax return is higher by 0.27%. 
D) Stock B's after-tax return is higher by 0.58%. 
A) Stock A's after-tax return is higher by 1.27%. 
B) Stock B's after-tax return is higher by 0.73%. 
C) Stock A's after-tax return is higher by 0.27%. 
D) Stock B's after-tax return is higher by 0.58%.

Question 10

Investors may prefer lower dividends over higher dividends because:

Accepted Answer

A) low dividends are more predictable. 
B) capital gains may be taxed less heavily than dividends. 
C) of the "bird in the hand" logic. 
D) low dividends indicate heavy investment for the future. 
A) low dividends are more predictable. 
B) capital gains may be taxed less heavily than dividends. 
C) of the "bird in the hand" logic. 
D) low dividends indicate heavy investment for the future.

Question 11

ABC Corp.stock is selling for $30 per share when a 10% stock dividend is declared.If you own 100 shares of ABC Corp.then you will receive:

Accepted Answer

A) $3. 
B) $3 times 100 shares = $300. 
C) $300 plus 10 shares of ABC Corp. 
D) 10 shares of ABC Corp. 
A) $3. 
B) $3 times 100 shares = $300. 
C) $300 plus 10 shares of ABC Corp. 
D) 10 shares of ABC Corp.

Question 12

The effect of a stock repurchase is not equivalent to that of a cash dividend.

Accepted Answer

A) True 
 B)False

Question 13

Those economists feeling that low dividend payouts will increase share price focus on:

Accepted Answer

A) the difficulty in predicting earnings. 
B) superior reinvestment opportunities. 
C) tax differentials between dividends and capital gains. 
D) the cost of borrowing to maintain high payouts. 
A) the difficulty in predicting earnings. 
B) superior reinvestment opportunities. 
C) tax differentials between dividends and capital gains. 
D) the cost of borrowing to maintain high payouts.

Question 14

Global Inc.'s shares are selling for $36 per share.Determine the new price per share, if the company a 4 for 6 reverse stock split.

Accepted Answer

A) $54 
B) $44 
C) $34 
D) $24 
A) $54 
B) $44 
C) $34 
D) $24

Question 15

Anyone holding a stock before its ex-dividend date is entitled to the dividend.

Accepted Answer

A) True 
 B)False

Question 16

Payout policy may be defined as the trade-off between cash dividends on the one hand and paying out cash and issuing shares on the other.

Accepted Answer

A) True 
 B)False

Question 17

What capital gain must a non-dividend-paying stock attain in order for a corporate investor in the 35% tax bracket to be indifferent to a stock paying an 8% dividend but having no capital gain? Assume 30% tax rate on dividends.

Accepted Answer

A) 8.00% 
B) 9.29% 
C) 11.02% 
D) 12.31% 
A) 8.00% 
B) 9.29% 
C) 11.02% 
D) 12.31%

Question 18

A stock split and/or a stock dividend will result in an:

Accepted Answer

A) increase in the number of shares outstanding. 
B) increase in the market value of the firm. 
C) increase in the total assets of the firm. 
D) increase in both the number of shares outstanding and the total assets of the firm. 
A) increase in the number of shares outstanding. 
B) increase in the market value of the firm. 
C) increase in the total assets of the firm. 
D) increase in both the number of shares outstanding and the total assets of the firm.

Question 19

CormexInc.paid a dividend of $0.75 per share.It forecasted a $1.90 per share in earnings and had a stock price of $27.Determine the stock price if Cormex declared a 10% stock dividend.

Accepted Answer

A) $27.55 
B) $26.55 
C) $25.55 
D) $24.55 
A) $27.55 
B) $26.55 
C) $25.55 
D) $24.55

Question 20

How are dividends paid and how do companies decide on dividend payments?

Accepted Answer

Dividends come in many forms.The most co

Exam 18: Payout Policy

A stock split will affect the stock's price while a stock dividend will not.

Which of the following is not a logical justification for dividend preference (versus capital gains) in the real world?

Global Inc.has 240,000 shares outstanding.If the company declares a 4 for 6 reverse stock split, determine the number of shares outstanding afterwards.

Why are dividend changes rather than their absolute level perceived to be more important to managers and shareholders?

Corporate dividends are less volatile than corporate earnings.

A corporation that has an automatic reinvestment plan:

In a two-for-one stock split, each investor would receive one additional share for each share already held.

Which of the following signals is most likely to elicit a decrease in share price?

Investors may prefer lower dividends over higher dividends because:

ABC Corp.stock is selling for $30 per share when a 10% stock dividend is declared.If you own 100 shares of ABC Corp.then you will receive:

The effect of a stock repurchase is not equivalent to that of a cash dividend.

Those economists feeling that low dividend payouts will increase share price focus on:

Global Inc.'s shares are selling for $36 per share.Determine the new price per share, if the company a 4 for 6 reverse stock split.

Anyone holding a stock before its ex-dividend date is entitled to the dividend.

Payout policy may be defined as the trade-off between cash dividends on the one hand and paying out cash and issuing shares on the other.

What capital gain must a non-dividend-paying stock attain in order for a corporate investor in the 35% tax bracket to be indifferent to a stock paying an 8% dividend but having no capital gain? Assume 30% tax rate on dividends.

A stock split and/or a stock dividend will result in an:

CormexInc.paid a dividend of $0.75 per share.It forecasted a $1.90 per share in earnings and had a stock price of $27.Determine the stock price if Cormex declared a 10% stock dividend.

How are dividends paid and how do companies decide on dividend payments?

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