Question 1

Which of the following sentences are correct about share splits?

Accepted Answer

A)  A share split is when shareholders are issued with additional shares. 
B)  A share split is another way to distribute value to shareholders. 
C)  None of the above. 
D)  All of the above. 
A)  A share split is when shareholders are issued with additional shares. 
B)  A share split is another way to distribute value to shareholders. 
C)  None of the above. 
D)  All of the above. A

Question 2

Which of the following statement is consistent with the trade-off theory?

Accepted Answer

A)  More profitable companies pay more tax, so they should use more debt to take advantage of the interest tax shield. 
B)  The more profitable a company is, the less debt it tends to have. 
C)  None of the above. 
D)  All of the above. 
A)  More profitable companies pay more tax, so they should use more debt to take advantage of the interest tax shield. 
B)  The more profitable a company is, the less debt it tends to have. 
C)  None of the above. 
D)  All of the above. A

Question 3

The initial decision of whether or not to pay a dividend comes from:

Accepted Answer

A)  shareholder vote. 
B)  the Board of Directors' vote. 
C)  the CEO and the executive management team. 
D)  is written as part of the company's constitution. 
A)  shareholder vote. 
B)  the Board of Directors' vote. 
C)  the CEO and the executive management team. 
D)  is written as part of the company's constitution. B

Question 4

Which of the following statements is correct?

Accepted Answer

A)  People behave differently towards a company in financial distress, and this increases insolvency costs. 
B)  People behave differently towards a company in financial distress, and this reduces insolvency costs 
C)  People behave differently towards a company in financial distress, and this reduces insolvency costs. 
D)  People behave similarly towards a company in financial distress, and this increases insolvency costs 
A)  People behave differently towards a company in financial distress, and this increases insolvency costs. 
B)  People behave differently towards a company in financial distress, and this reduces insolvency costs 
C)  People behave differently towards a company in financial distress, and this reduces insolvency costs. 
D)  People behave similarly towards a company in financial distress, and this increases insolvency costs

Question 5

Which of the following factors is least likely to influence a company's dividend policy?

Accepted Answer

A)  Liquidity. 
B)  Balance of its franking account. 
C)  Stage of the company's life cycle. 
D)  The company's effective rate of income tax. 
A)  Liquidity. 
B)  Balance of its franking account. 
C)  Stage of the company's life cycle. 
D)  The company's effective rate of income tax.

Question 6

Which of the following statements is incorrect?

Accepted Answer

A)  The regulatory requirements of government agencies are greater. 
B)  The share market tends to react positively to announcements that companies are selling shares. 
C)  The out-of-pocket costs of selling equity are much higher than the comparable costs for bonds. 
D)  None of the above. 
A)  The regulatory requirements of government agencies are greater. 
B)  The share market tends to react positively to announcements that companies are selling shares. 
C)  The out-of-pocket costs of selling equity are much higher than the comparable costs for bonds. 
D)  None of the above.

Question 7

The 10/12 limit means:

Accepted Answer

A)  A minimum of 10 percent of shareholders must accept the share buy-back offer. 
B)  Companies can offer a minimum of 10 percent and a maximum 12 percent premium for the share buy-back. 
C)  Only shareholders who have held their shares for a minimum of 10 months can sell up to 12 percent of their shareholding. 
D)  Companies can only buy back 10 per cent or less of their total shares within a 12-monthperiod. This rule is known as the 10/12 limit. 
A)  A minimum of 10 percent of shareholders must accept the share buy-back offer. 
B)  Companies can offer a minimum of 10 percent and a maximum 12 percent premium for the share buy-back. 
C)  Only shareholders who have held their shares for a minimum of 10 months can sell up to 12 percent of their shareholding. 
D)  Companies can only buy back 10 per cent or less of their total shares within a 12-monthperiod. This rule is known as the 10/12 limit.

Question 8

The managers and shareholders of a company also often behave in ways that reduce a company's value when the company becomes financially distressed. The resulting costs are a type of:

Accepted Answer

A)  Agency cost. 
B)  Shareholder -lender agency costs. 
C)  Shareholder-manager agency costs. 
D)  None of the above. 
A)  Agency cost. 
B)  Shareholder -lender agency costs. 
C)  Shareholder-manager agency costs. 
D)  None of the above.

Question 9

How does a bonus share issue differ from a share split?

Accepted Answer

A)  They do not differ; they are both issuing new shares to existing shareholders. 
B)  Bonus share issues distribute value to existing shareholders; share splits remove value from existing shareholders. 
C)  Bonus share issues are usually issued as a percentage of existing shares, whereas a share split is usually issued as a multiples of existing shares. 
D)  None of the above. 
A)  They do not differ; they are both issuing new shares to existing shareholders. 
B)  Bonus share issues distribute value to existing shareholders; share splits remove value from existing shareholders. 
C)  Bonus share issues are usually issued as a percentage of existing shares, whereas a share split is usually issued as a multiples of existing shares. 
D)  None of the above.

Question 10

What is the name of the tax system that was introduced to avoid double taxation?

Accepted Answer

A)  Imputation tax system. 
B)  The franking system. 
C)  The neo-classical tax system. 
D)  Tax credit system. 
A)  Imputation tax system. 
B)  The franking system. 
C)  The neo-classical tax system. 
D)  Tax credit system.

Question 11

How can dividends be distributed?

Accepted Answer

A)  Discounts on company products. 
B)  Cash. 
C)  Assets or more shares. 
D)  All of the above 
A)  Discounts on company products. 
B)  Cash. 
C)  Assets or more shares. 
D)  All of the above

Question 12

What are share buy backs used for?

Accepted Answer

A)  Removing shareholders. 
B)  Signalling to the market. 
C)  Improving capital structure. 
D)  All of the above. 
A)  Removing shareholders. 
B)  Signalling to the market. 
C)  Improving capital structure. 
D)  All of the above.

Question 13

Changing the amount paid for cash dividends implies which of the following:

Accepted Answer

A)  the value of the company will increase/decrease. 
B)  the share price of the company will increase/decrease. 
C)  the company has had a fundamental change in their business. 
D)  all of the above. 
A)  the value of the company will increase/decrease. 
B)  the share price of the company will increase/decrease. 
C)  the company has had a fundamental change in their business. 
D)  all of the above.

Question 14

Why are share buy-backs not subject to tax imputation?

Accepted Answer

A)  It is not a dividend. Share buy-backs can be subject to Capital Gains Tax. 
B)  Because it is optional whether or not to sell your shares in a share-buy back. 
C)  Because the money used to purchase shares through share buy-backs are not from company profits. 
D)  None of the above. 
A)  It is not a dividend. Share buy-backs can be subject to Capital Gains Tax. 
B)  Because it is optional whether or not to sell your shares in a share-buy back. 
C)  Because the money used to purchase shares through share buy-backs are not from company profits. 
D)  None of the above.

Question 15

It is important to note that without financial leverage, there would be no:

Accepted Answer

A)  Shareholder -lender agency costs. 
B)  Shareholder-manager agency costs. 
C)  Asset substitution or underinvestment problems. 
D)  All of the above. 
A)  Shareholder -lender agency costs. 
B)  Shareholder-manager agency costs. 
C)  Asset substitution or underinvestment problems. 
D)  All of the above.

Question 16

Dividend policy is based on:

Accepted Answer

A)  Last year's dividend. 
B)  Company management discretion. 
C)  Profits/losses and future forecasts. 
D)  B and C 
A)  Last year's dividend. 
B)  Company management discretion. 
C)  Profits/losses and future forecasts. 
D)  B and C

Question 17

Publicly listed companies distribute dividends in some form or another:

Accepted Answer

A)  bi-annually. 
B)  only when the company has made a profit. 
C)  every year. 
D)  sometimes. 
A)  bi-annually. 
B)  only when the company has made a profit. 
C)  every year. 
D)  sometimes.

Question 18

A special dividend is different to a regular cash dividend because:

Accepted Answer

A)  It is paid out of retained cash, not company profits. 
B)  Special dividend is a terminology used by finance professionals to describe the first time a company issues a dividend. 
C)  It is only paid to some shareholders, not all shareholders. 
D)  It is a one-time payment outside of the company's normal dividend schedule. 
A)  It is paid out of retained cash, not company profits. 
B)  Special dividend is a terminology used by finance professionals to describe the first time a company issues a dividend. 
C)  It is only paid to some shareholders, not all shareholders. 
D)  It is a one-time payment outside of the company's normal dividend schedule.

Question 19

It is important to note that without financial leverage, there would be no:

Accepted Answer

A)  Underinvestment problems. 
B)  Asset substitution. 
C)  Both A and B 
D)  None of the above. 
A)  Underinvestment problems. 
B)  Asset substitution. 
C)  Both A and B 
D)  None of the above.

Question 20

Which of the following statements is incorrect?

Accepted Answer

A)  The interests of managers are normally similar to those of the shareholders. 
B)  When a company gets into financial distress, the interests of managers and shareholders begin to differ. 
C)  When a company gets into financial distress, the actions managers and shareholders take to protect their interests often increase company value. 
D)  Indirect insolvency costs are costs associated with changes in the behaviour of people who deal with a company when it becomes financially distressed. 
A)  The interests of managers are normally similar to those of the shareholders. 
B)  When a company gets into financial distress, the interests of managers and shareholders begin to differ. 
C)  When a company gets into financial distress, the actions managers and shareholders take to protect their interests often increase company value. 
D)  Indirect insolvency costs are costs associated with changes in the behaviour of people who deal with a company when it becomes financially distressed.

Which of the following sentences are correct about share splits?

Which of the following statement is consistent with the trade-off theory?

The initial decision of whether or not to pay a dividend comes from:

Which of the following statements is correct?

Which of the following factors is least likely to influence a company's dividend policy?

Which of the following statements is incorrect?

The 10/12 limit means:

The managers and shareholders of a company also often behave in ways that reduce a company's value when the company becomes financially distressed. The resulting costs are a type of:

How does a bonus share issue differ from a share split?

What is the name of the tax system that was introduced to avoid double taxation?

How can dividends be distributed?

What are share buy backs used for?

Changing the amount paid for cash dividends implies which of the following:

Why are share buy-backs not subject to tax imputation?

It is important to note that without financial leverage, there would be no:

Dividend policy is based on:

Publicly listed companies distribute dividends in some form or another:

A special dividend is different to a regular cash dividend because:

It is important to note that without financial leverage, there would be no:

Which of the following statements is incorrect?

Finance in Business

Time Value of Money, Financial Markets, the Reserve Bank of Australia and Interest Rates

Discounted Cash Flows and Valuation

Risk and Return

Share Valuation and Bond Valuation

Capital Budgeting and Cash Flows

Cost of Capital and Working Capital Management

Filters

Exam 8: Capital Structure and Dividend Policy

Which of the following sentences are correct about share splits?

Which of the following statement is consistent with the trade-off theory?

The initial decision of whether or not to pay a dividend comes from:

Which of the following statements is correct?

Which of the following factors is least likely to influence a company's dividend policy?

Which of the following statements is incorrect?

The 10/12 limit means:

The managers and shareholders of a company also often behave in ways that reduce a company's value when the company becomes financially distressed. The resulting costs are a type of:

How does a bonus share issue differ from a share split?

What is the name of the tax system that was introduced to avoid double taxation?

How can dividends be distributed?

What are share buy backs used for?

Changing the amount paid for cash dividends implies which of the following:

Why are share buy-backs not subject to tax imputation?

It is important to note that without financial leverage, there would be no:

Dividend policy is based on:

Publicly listed companies distribute dividends in some form or another:

A special dividend is different to a regular cash dividend because:

It is important to note that without financial leverage, there would be no:

Which of the following statements is incorrect?

Finance in Business

Time Value of Money, Financial Markets, the Reserve Bank of Australia and Interest Rates

Discounted Cash Flows and Valuation

Risk and Return

Share Valuation and Bond Valuation

Capital Budgeting and Cash Flows

Cost of Capital and Working Capital Management

Filters