Question 1

Restrictive covenants are contained in all of the following except

Accepted Answer

A) preferred stock agreements 
B) lease contracts 
C) bond indentures 
D) agency restrictions 
A) preferred stock agreements 
B) lease contracts 
C) bond indentures 
D) agency restrictions

Question 2

Concin has the following equity accounts on its balance sheet:
 
The current market price for a share of Concin's stock is $24.25.If the firm declares a 10% stock dividend and a $0.06 per share cash dividend, what will be the impact on Common stock on the above equity account?

Accepted Answer

A) no change 
B) increase of $225,000 
C) increase of $54,000 
D) increase of $21,600,000 
A) no change 
B) increase of $225,000 
C) increase of $54,000 
D) increase of $21,600,000

Question 3

The passive residual dividend policy asserts that

Accepted Answer

A) dividends should be paid out only if the firm does not have enough acceptable investment projects to utilize all earnings internally. 
B) dividends should be paid only when the firm has ready access to new equity markets 
C) retained earnings, being the residual earnings of the firm, should always be paid out to existing stockholders 
D) investment policy and dividend policy decisions should always be made independently 
A) dividends should be paid out only if the firm does not have enough acceptable investment projects to utilize all earnings internally. 
B) dividends should be paid only when the firm has ready access to new equity markets 
C) retained earnings, being the residual earnings of the firm, should always be paid out to existing stockholders 
D) investment policy and dividend policy decisions should always be made independently

Question 4

On the ex-dividend date, the

Accepted Answer

A) seller of the stock is entitled to the dividend 
B) buyer has 4 business days to register his/her purchase 
C) buyer of the stock is entitled to the dividend 
D) corporation records all security owners 
A) seller of the stock is entitled to the dividend 
B) buyer has 4 business days to register his/her purchase 
C) buyer of the stock is entitled to the dividend 
D) corporation records all security owners

Question 5

All of the following are advantages of share repurchase as a dividend decision EXCEPT:

Accepted Answer

A) effectively converts dividend income into capital gains income 
B) provide firm with greater financial flexibility in timing the payment of returns to shareholders. 
C) all current shareholders are able to sell their shares at a higher price 
D) they represent a signal to investors that the company expects higher earnings in the future 
A) effectively converts dividend income into capital gains income 
B) provide firm with greater financial flexibility in timing the payment of returns to shareholders. 
C) all current shareholders are able to sell their shares at a higher price 
D) they represent a signal to investors that the company expects higher earnings in the future

Question 6

A dividend method that many tech companies favor in order to have more tax efficiency, boost earnings per share and signal that the company has more productive uses for its cash than paying dividends is:

Accepted Answer

A) stock splits 
B) reverse stock splits 
C) dividend payout 
D) stock buybacks 
A) stock splits 
B) reverse stock splits 
C) dividend payout 
D) stock buybacks

Question 7

A firm that employs a constant payout ratio dividend policy pays .

Accepted Answer

A) a constant (fixed) dollar dividend 
B) out a certain percentage of each year's earnings 
C) a constant quarterly dividend 
D) low payout ratios if the company has low growth rates 
A) a constant (fixed) dollar dividend 
B) out a certain percentage of each year's earnings 
C) a constant quarterly dividend 
D) low payout ratios if the company has low growth rates

Question 8

All of the following are alternative dividend policies EXCEPT:

Accepted Answer

A) constant payout 
B) stable dollar 
C) constant earnings 
D) passive residual 
A) constant payout 
B) stable dollar 
C) constant earnings 
D) passive residual

Question 9

The capital impairment restriction, a legal constraint on dividend payments, states that

Accepted Answer

A) only the current year's earnings may be used for dividend payments 
B) dividends may not be paid out of stockholder's equity 
C) a firm's permanent capital cannot be used to make dividend payments 
D) a firm's capital surplus can be used to make dividend payments 
A) only the current year's earnings may be used for dividend payments 
B) dividends may not be paid out of stockholder's equity 
C) a firm's permanent capital cannot be used to make dividend payments 
D) a firm's capital surplus can be used to make dividend payments

Question 10

A firm with stable earnings is usually more willing to

Accepted Answer

A) retain more earnings 
B) have a higher dividend payout ratio 
C) have a sinking fund agreement 
D) seek aggressive growth 
A) retain more earnings 
B) have a higher dividend payout ratio 
C) have a sinking fund agreement 
D) seek aggressive growth

Question 11

Under the Revenue Reconciliation Act of 1993, the tax-paying individual investor may prefer low dividends and higher expected capital gains because .

Accepted Answer

A) the top marginal rate is lower on dividend income than on capital gains 
B) the taxes on capital gains can be deferred 
C) capital gains are more certain than share repurchases 
D) the tax on capital gains is 28% 
A) the top marginal rate is lower on dividend income than on capital gains 
B) the taxes on capital gains can be deferred 
C) capital gains are more certain than share repurchases 
D) the tax on capital gains is 28%

Question 12

The record date in the normal dividend payment procedure is

Accepted Answer

A) the same day as the declaration date 
B) the same day as the ex-dividend date 
C) the date when the firm makes a list from its stock transfer books of shareholders eligible to receive the dividend 
D) one day prior to the payment date 
A) the same day as the declaration date 
B) the same day as the ex-dividend date 
C) the date when the firm makes a list from its stock transfer books of shareholders eligible to receive the dividend 
D) one day prior to the payment date

Question 13

Finance researcher Myron Gordon argues that

Accepted Answer

A) risk-averse shareholders may prefer some dividends over the promise of future capital gains if the interest rate is expected to decline 
B) dividends reduce uncertainty, and thus the payment of dividends will increase the firm's value 
C) the clientele effect has no influence on share value 
D) the existence of transaction costs has no impact on the dividend decision 
A) risk-averse shareholders may prefer some dividends over the promise of future capital gains if the interest rate is expected to decline 
B) dividends reduce uncertainty, and thus the payment of dividends will increase the firm's value 
C) the clientele effect has no influence on share value 
D) the existence of transaction costs has no impact on the dividend decision

Question 14

A passive residual dividend policy suggests that the firm will:

Accepted Answer

A) pay the same dollar amount of dividends every year 
B) pay the same percentage of earnings in dividends every year 
C) pay a dividend only after all viable investment projects have been exhausted 
D) omit a dividend in the next period 
A) pay the same dollar amount of dividends every year 
B) pay the same percentage of earnings in dividends every year 
C) pay a dividend only after all viable investment projects have been exhausted 
D) omit a dividend in the next period

Question 15

The theoretical post-stock dividend price is equal to the pre-stock dividend price .

Accepted Answer

A) multiplied by 1 minus the percentage stock dividend rate 
B) multiplied by 1 plus the percentage stock dividend rate 
C) divided by 1 minus the percentage stock dividend rate 
D) divided by 1 plus the percentage stock dividend rate 
A) multiplied by 1 minus the percentage stock dividend rate 
B) multiplied by 1 plus the percentage stock dividend rate 
C) divided by 1 minus the percentage stock dividend rate 
D) divided by 1 plus the percentage stock dividend rate

Question 16

Many firms try to maintain a stable dividend policy

Accepted Answer

A) because of the informational content of dividend changes 
B) in order to satisfy investors who rely on dividends as a primary source of income 
C) in order to remain as eligible investments for many financial institutions 
D) all of the above 
A) because of the informational content of dividend changes 
B) in order to satisfy investors who rely on dividends as a primary source of income 
C) in order to remain as eligible investments for many financial institutions 
D) all of the above

Question 17

Wrenn Corp.has 5.6 million shares outstanding, interest expenses of $4.4 million, and depreciation expenses of $3.7 million.What is Wrenn's operating income if the dividend per share is $0.80 and the dividend payout ratio is 35%? Assume a marginal tax rate of 40%.

Accepted Answer

A) $15.89 million 
B) $25.73 million 
C) $21.33 million 
D) $29.43 million 
A) $15.89 million 
B) $25.73 million 
C) $21.33 million 
D) $29.43 million

Question 18

Under dividend reinvestment plans, shareholders can automatically

Accepted Answer

A) reduce their taxable income 
B) increase their cash inflows 
C) use dividends to purchase additional shares 
D) transfer from retained earnings accounts to equity accounts. 
A) reduce their taxable income 
B) increase their cash inflows 
C) use dividends to purchase additional shares 
D) transfer from retained earnings accounts to equity accounts.

Question 19

Determine the balance in the common stock account after the stock dividend.

Accepted Answer

A) $1,250,000 
B) $1,375,000 
C) $125,000 
D) $2,500,000 
A) $1,250,000 
B) $1,375,000 
C) $125,000 
D) $2,500,000

Question 20

Zycad has operating earnings (EBIT) of $8.6 million and annual interest expenses are $1.5 million.Zycad wishes to maintain its annual dividend of $1.00 per share on the 1,900,000 shares outstanding.The firm has a bond issue outstanding that requires the retirement of $3 million (face value) of the issue each year through purchases of the bonds in the market.What is the maximum dividend per share that may be paid if the current market price of the bonds is $85? Assume the marginal tax rate is 40% and that earnings are the only source of funds that can be used to pay the dividend and retire the bonds.

Accepted Answer

A) $0.66 
B) $0.16 
C) $1.37 
D) $0.90 
A) $0.66 
B) $0.16 
C) $1.37 
D) $0.90

Exam 15: Dividend Policy

Restrictive covenants are contained in all of the following except

Concin has the following equity accounts on its balance sheet: The current market price for a share of Concin's stock is $24.25.If the firm declares a 10% stock dividend and a $0.06 per share cash dividend, what will be the impact on Common stock on the above equity account?

The passive residual dividend policy asserts that

On the ex-dividend date, the

All of the following are advantages of share repurchase as a dividend decision EXCEPT:

A dividend method that many tech companies favor in order to have more tax efficiency, boost earnings per share and signal that the company has more productive uses for its cash than paying dividends is:

A firm that employs a constant payout ratio dividend policy pays .

All of the following are alternative dividend policies EXCEPT:

The capital impairment restriction, a legal constraint on dividend payments, states that

A firm with stable earnings is usually more willing to

Under the Revenue Reconciliation Act of 1993, the tax-paying individual investor may prefer low dividends and higher expected capital gains because .

The record date in the normal dividend payment procedure is

Finance researcher Myron Gordon argues that

A passive residual dividend policy suggests that the firm will:

The theoretical post-stock dividend price is equal to the pre-stock dividend price .

Many firms try to maintain a stable dividend policy

Wrenn Corp.has 5.6 million shares outstanding, interest expenses of $4.4 million, and depreciation expenses of $3.7 million.What is Wrenn's operating income if the dividend per share is $0.80 and the dividend payout ratio is 35%? Assume a marginal tax rate of 40%.

Under dividend reinvestment plans, shareholders can automatically

Determine the balance in the common stock account after the stock dividend.

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

Filters