Question 1

One reason why small business concerns have very low dividend payout ratios is that

Accepted Answer

A) the firm usually is low on cash 
B) the firm needs funds for taxes 
C) the firm needs the funds to finance growth 
D) the small firm prefers stock offerings 
A) the firm usually is low on cash 
B) the firm needs funds for taxes 
C) the firm needs the funds to finance growth 
D) the small firm prefers stock offerings

Question 2

Several regulations limit dividend payments.All of the following limit dividend payments except:

Accepted Answer

A) Capital impairment restriction 
B) Restrictive covenants 
C) Net earnings restriction 
D) Liability restriction 
A) Capital impairment restriction 
B) Restrictive covenants 
C) Net earnings restriction 
D) Liability restriction

Question 3

A legal constraint that dividends must be paid out of a firm's present and past net earnings is known as the restriction.

Accepted Answer

A) net earnings 
B) net operating earnings 
C) initial investment 
D) earned capital 
A) net earnings 
B) net operating earnings 
C) initial investment 
D) earned capital

Question 4

The dividend states that investors will tend to be attracted to firms that have dividend policies consistent with the investor's objectives

Accepted Answer

A) "clientele effect" 
B) "informational content" 
C) signal 
D) passive residual theory 
A) "clientele effect" 
B) "informational content" 
C) signal 
D) passive residual theory

Question 5

The Percolator Company has the following capital structure:
 
The company declares a 10 percent stock dividend.The pre-stock dividend market price of the company's stock is $50.Determine the balance in the retained earnings account after the stock dividend.

Accepted Answer

A) $4,000,000 
B) $1,375,000 
C) $2,750,000 
D) $1,250,000 
A) $4,000,000 
B) $1,375,000 
C) $2,750,000 
D) $1,250,000

Question 6

Cycle Out has 1,000,000 shares outstanding and currently has annual earnings per share of $5.20.If Cycle's stock price is $62.40, what would be the expected stock price if Cycle repurchases 50,000 shares?

Accepted Answer

A) $65.52 
B) $65.68 
C) $75.72 
D) Cannot be determined from the information provided 
A) $65.52 
B) $65.68 
C) $75.72 
D) Cannot be determined from the information provided

Question 7

In a large, widely-held corporation, the financial manager should consider all of the following in establishing a dividend policy EXCEPT:

Accepted Answer

A) individual shareholder preferences 
B) cash flow needs 
C) informational content of dividends 
D) investment opportunities 
A) individual shareholder preferences 
B) cash flow needs 
C) informational content of dividends 
D) investment opportunities

Question 8

Omega Sports has the following equity accounts on its balance sheet:
 
The current market price of the firm's shares is $20.If the firm declares a 10 percent stock dividend and a cash dividend of $0.10 per share, the retained earning account would change to .

Accepted Answer

A) $21,060,000 
B) $19,305,000 
C) $25,335,000 
D) $19,404,000 
A) $21,060,000 
B) $19,305,000 
C) $25,335,000 
D) $19,404,000

Question 9

Explain the "clientele effect."

Accepted Answer

Firms develop their own clientele of inv

Question 10

Peterson Company expects earnings per share and dividends per share to be $4.50 and $2.50 respectively next year.Peterson currently has 5,000,000 shares of common stock outstanding.The company's capital budget for next year is projected to be $25,000,000.Peterson plans to maintain its present debt ratio (debt to total assets) at 40% next year.(Assume that Peterson's capital structure includes only common equity and debt and that these will be the only sources of funds to finance capital budgeting projects next year.) Determine how much external equity the company must raise to finance its capital budget.

Accepted Answer

A) $15,000,000 
B) 0 
C) $5,000,000 
D) cannot be determined 
A) $15,000,000 
B) 0 
C) $5,000,000 
D) cannot be determined

Question 11

In the theoretical world of Miller and Modigliani

Accepted Answer

A) a firm should pay out 100 percent of earnings as dividends to maximize shareholder wealth 
B) the marginal tax rates facing investors are the most important single determinant of dividend policy 
C) dividends are important only for their informational content 
D) dividends reduce investors' uncertainty 
A) a firm should pay out 100 percent of earnings as dividends to maximize shareholder wealth 
B) the marginal tax rates facing investors are the most important single determinant of dividend policy 
C) dividends are important only for their informational content 
D) dividends reduce investors' uncertainty

Question 12

The following factors influence a firm's ability and/or willingness to pay dividends:

Accepted Answer

A) liquidity 
B) borrowing capacity and access to capital markets 
C) earnings stability 
D) all of these 
A) liquidity 
B) borrowing capacity and access to capital markets 
C) earnings stability 
D) all of these

Question 13

The net effect of a stock dividend is to

Accepted Answer

A) increase the firm's total stockholders' equity 
B) increase the number of shares outstanding 
C) increase total dividends 
D) increase stock prices 
A) increase the firm's total stockholders' equity 
B) increase the number of shares outstanding 
C) increase total dividends 
D) increase stock prices

Question 14

Zimmer Corp.has just declared a 5 for 4 stock split.If the pre-split price of common stock was $36 a share, what will be the post-split price per share (assuming no other changes occur)?

Accepted Answer

A) $30.00 
B) $27,00 
C) $28.80 
D) $32.00 
A) $30.00 
B) $27,00 
C) $28.80 
D) $32.00

Question 15

Why do firms feel that liquidity is desirable even though it may mean that the firm does not utilize the investment capability of cash? What other means does a firm use to take advantage of investment opportunities since cash must be kept on hand?

Accepted Answer

Liquidity is desirable for a number of r

Question 16

According to Miller and Modigliani, it is that really determines a firm's value.

Accepted Answer

A) investment policy 
B) dividend policy 
C) payout ratio 
D) transaction costs 
A) investment policy 
B) dividend policy 
C) payout ratio 
D) transaction costs

Exam 15: Dividend Policy

One reason why small business concerns have very low dividend payout ratios is that

Several regulations limit dividend payments.All of the following limit dividend payments except:

A legal constraint that dividends must be paid out of a firm's present and past net earnings is known as the restriction.

The dividend states that investors will tend to be attracted to firms that have dividend policies consistent with the investor's objectives

The Percolator Company has the following capital structure: The company declares a 10 percent stock dividend.The pre-stock dividend market price of the company's stock is $50.Determine the balance in the retained earnings account after the stock dividend.

Cycle Out has 1,000,000 shares outstanding and currently has annual earnings per share of $5.20.If Cycle's stock price is $62.40, what would be the expected stock price if Cycle repurchases 50,000 shares?

In a large, widely-held corporation, the financial manager should consider all of the following in establishing a dividend policy EXCEPT:

Omega Sports has the following equity accounts on its balance sheet: The current market price of the firm's shares is $20.If the firm declares a 10 percent stock dividend and a cash dividend of $0.10 per share, the retained earning account would change to .

Explain the "clientele effect."

In the theoretical world of Miller and Modigliani

The following factors influence a firm's ability and/or willingness to pay dividends:

The net effect of a stock dividend is to

Zimmer Corp.has just declared a 5 for 4 stock split.If the pre-split price of common stock was $36 a share, what will be the post-split price per share (assuming no other changes occur)?

Why do firms feel that liquidity is desirable even though it may mean that the firm does not utilize the investment capability of cash? What other means does a firm use to take advantage of investment opportunities since cash must be kept on hand?

According to Miller and Modigliani, it is that really determines a firm's value.

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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