Question 1

Which of the following would be considered an alternative dividend policy?

Accepted Answer

A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II 
A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II

Question 2

In considering the arguments for the relevance of dividends, which of the following statements is/are correct?

Accepted Answer

A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II 
A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II

Question 3

Firms with the earnings growth tend to have the dividend payout ratio.

Accepted Answer

A) highest, highest 
B) highest, lowest 
C) lowest, lowest 
D) lowest, highest 
A) highest, highest 
B) highest, lowest 
C) lowest, lowest 
D) lowest, highest

Question 4

Excelsior Company's capital structure is as follows:
 
The current market price of the firm's common stock is $30.If the firm declares a 10% stock dividend, determine the balance in the contributed capital in excess of par and retained earnings accounts.

Accepted Answer

A) $22,000,000;$17,000,000 
B) $21,600,000;$17,000,000 
C) $21,600,000;$23,000,000 
D) $17,000,000;$21,600,000 
A) $22,000,000;$17,000,000 
B) $21,600,000;$17,000,000 
C) $21,600,000;$23,000,000 
D) $17,000,000;$21,600,000

Question 5

Sorsi has declared a 15% stock dividend.If the stock was selling for $34 before the ex-dividend date, what should its price be on the ex-dividend date?

Accepted Answer

A) $34.00 
B) $29.57 
C) $28.90 
D) $30.91 
A) $34.00 
B) $29.57 
C) $28.90 
D) $30.91

Question 6

Heintz Corp.has just declared a 10% stock dividend.The company's pre-stock dividend common stockholders' equity was as follows:
 
If the common stock of Heintz was selling at $32 a share prior to the stock dividend, what will the retained earnings be after the stock dividend is distributed?

Accepted Answer

A) $65,500,000 
B) $118,500,000 
C) $66,000,000 
D) $97,500,000 
A) $65,500,000 
B) $118,500,000 
C) $66,000,000 
D) $97,500,000

Question 7

What are the factors that determine the dividend policy of a firm?

Accepted Answer

1.Legal constraints:Many states have law

Question 8

As part of a share repurchase program by a company, a tender offer involves the .

Accepted Answer

A) purchase of stock on the open market 
B) purchase of stock directly from its stockholders 
C) private negotiation of purchases from large institutions, such as insurance companies 
D) planning for many positive-NPV investments 
A) purchase of stock on the open market 
B) purchase of stock directly from its stockholders 
C) private negotiation of purchases from large institutions, such as insurance companies 
D) planning for many positive-NPV investments

Question 9

Leigh Fibers has 6 million shares outstanding.This year Leigh will have operating income (EBIT) of $36.4 million, interest expenses of $5.8 million, and depreciation expenses of $6.2 million.What will be Leigh's dividend per share if the company has a payout ratio of 30%? Assume a marginal tax rate of 40%.

Accepted Answer

A) $0.92 
B) $0.73 
C) $1.09 
D) $0.61 
A) $0.92 
B) $0.73 
C) $1.09 
D) $0.61

Question 10

Badger Tool and Die Company has 100,000 shares outstanding and plans to pay $1.00 per share in dividends each quarter next year.Badger has a capital budget of $700,000 for next year and plans to maintain its present debt ratio of 0.30.If earnings are expected to be $7.20 per share, how much external equity must Badger raise?

Accepted Answer

A) $210,000 
B) $490,000 
C) $170,000 
D) none 
A) $210,000 
B) $490,000 
C) $170,000 
D) none

Question 11

Last year, Toluca Engineering paid a $0.25 dividend per share each quarter.If Toluca announces both a 5 percent stock dividend and an increase in the quarterly dividend to $0.27, what is the effective rate of the dividend increase?

Accepted Answer

A) 13.0% 
B) 8.0% 
C) 11.2% 
D) 13.4% 
A) 13.0% 
B) 8.0% 
C) 11.2% 
D) 13.4%

Question 12

HiTec is growing fast and wishes to retain all its earnings to finance future growth.Instead of a cash dividend, HiTec declares a 10 percent stock dividend.If the price per share of HiTec stock is $30 before the ex-dividend date, what will be the price on the ex-dividend date?

Accepted Answer

A) $27.27 
B) $27.94 
C) $33.00 
D) $27.00 
A) $27.27 
B) $27.94 
C) $33.00 
D) $27.00

Question 13

Which of the following is not a direct result of a stock dividend?

Accepted Answer

A) the number of shares outstanding is increased 
B) the market price of each outstanding share is increased 
C) the amounts shown in the firm's capital accounts are redistributed 
D) the per-share price of the stock goes up 
A) the number of shares outstanding is increased 
B) the market price of each outstanding share is increased 
C) the amounts shown in the firm's capital accounts are redistributed 
D) the per-share price of the stock goes up

Question 14

Haulsee Inc.paid a quarterly dividend of $0.12 and has announced both a 10% stock dividend and an increase in the quarterly dividend to $0.14.What is the effective rate of the dividend increase?

Accepted Answer

A) 26.7% 
B) 18.3% 
C) 28.3% 
D) 15.7% 
A) 26.7% 
B) 18.3% 
C) 28.3% 
D) 15.7%

Question 15

WPI Inc.has the following current equity accounts on its balance sheet:
 
If WPI earned $3.20 per share this year, what is the maximum dividend per share that WPI may pay if the state capital impairment provisions are limited to the par value and the contributed capital in excess of par accounts?

Accepted Answer

A) $3.20 
B) $31.08 
C) $34.28 
D) $15.54 
A) $3.20 
B) $31.08 
C) $34.28 
D) $15.54

Question 16

Most states limit dividend policy by requiring

Accepted Answer

A) that dividends may not be paid unless the firm generates net earnings during the most recent year 
B) that dividends may only be paid out of retained earnings 
C) that dividends may not be paid when the firm is insolvent 
D) the firm's capital to be used to pay dividends 
A) that dividends may not be paid unless the firm generates net earnings during the most recent year 
B) that dividends may only be paid out of retained earnings 
C) that dividends may not be paid when the firm is insolvent 
D) the firm's capital to be used to pay dividends

Question 17

When a firm purchases its own stock in the open market, the repurchased shares become known as .

Accepted Answer

A) treasury stock 
B) preferred stock 
C) option stock 
D) reinvestment stock 
A) treasury stock 
B) preferred stock 
C) option stock 
D) reinvestment stock

Question 18

Cafe de Oro earns $4.25 per share and has a dividend payout ratio of 0.40.If Cafe de Oro has a capital budget of $200,000 and 70,000 shares outstanding, what are the annual dividends per share?

Accepted Answer

A) $1.70 
B) $1.39 
C) $2.55 
D) $4.00 
A) $1.70 
B) $1.39 
C) $2.55 
D) $4.00

Question 19

All of the following are arguments for the relevance of dividends except:

Accepted Answer

A) existence of issuance costs 
B) reduction of agency costs 
C) protection against dilution 
D) risk aversion 
A) existence of issuance costs 
B) reduction of agency costs 
C) protection against dilution 
D) risk aversion

Question 20

According to the dividend policy, a firm that has more funds than it needs should pay a cash dividend to shareholders.

Accepted Answer

A) constant payout ratio 
B) stable dollar 
C) passive residual 
D) reinvestment 
A) constant payout ratio 
B) stable dollar 
C) passive residual 
D) reinvestment

Exam 15: Dividend Policy

Which of the following would be considered an alternative dividend policy?

In considering the arguments for the relevance of dividends, which of the following statements is/are correct?

Firms with the earnings growth tend to have the dividend payout ratio.

Excelsior Company's capital structure is as follows: The current market price of the firm's common stock is $30.If the firm declares a 10% stock dividend, determine the balance in the contributed capital in excess of par and retained earnings accounts.

Sorsi has declared a 15% stock dividend.If the stock was selling for $34 before the ex-dividend date, what should its price be on the ex-dividend date?

Heintz Corp.has just declared a 10% stock dividend.The company's pre-stock dividend common stockholders' equity was as follows: If the common stock of Heintz was selling at $32 a share prior to the stock dividend, what will the retained earnings be after the stock dividend is distributed?

What are the factors that determine the dividend policy of a firm?

As part of a share repurchase program by a company, a tender offer involves the .

Last year, Toluca Engineering paid a $0.25 dividend per share each quarter.If Toluca announces both a 5 percent stock dividend and an increase in the quarterly dividend to $0.27, what is the effective rate of the dividend increase?

HiTec is growing fast and wishes to retain all its earnings to finance future growth.Instead of a cash dividend, HiTec declares a 10 percent stock dividend.If the price per share of HiTec stock is $30 before the ex-dividend date, what will be the price on the ex-dividend date?

Which of the following is not a direct result of a stock dividend?

Haulsee Inc.paid a quarterly dividend of $0.12 and has announced both a 10% stock dividend and an increase in the quarterly dividend to $0.14.What is the effective rate of the dividend increase?

WPI Inc.has the following current equity accounts on its balance sheet: If WPI earned $3.20 per share this year, what is the maximum dividend per share that WPI may pay if the state capital impairment provisions are limited to the par value and the contributed capital in excess of par accounts?

Most states limit dividend policy by requiring

When a firm purchases its own stock in the open market, the repurchased shares become known as .

Cafe de Oro earns $4.25 per share and has a dividend payout ratio of 0.40.If Cafe de Oro has a capital budget of $200,000 and 70,000 shares outstanding, what are the annual dividends per share?

All of the following are arguments for the relevance of dividends except:

According to the dividend policy, a firm that has more funds than it needs should pay a cash dividend to shareholders.

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

A: The Time Value of Money

Fixed-Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Working Capital Management

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate-Term Financing

Financing with Derivatives

A: Financing with Derivatives

Risk Management

International Financial Management

Corporate Restructuring

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