Question 1

The Record Date falls before the Ex-Dividend Date.

Accepted Answer

A) True 
 B)False

Question 2

Share repurchases have a tax advantage over dividends because

Accepted Answer

A)  dividend payments are tax deductible. 
B)  share repurchases increase the value of debt. 
C)  capital gains can be deferred by long-term investors. 
D)  repurchases are associated with increased customer loyalty. 
E)  dividends are not taxed. 
A)  dividend payments are tax deductible. 
B)  share repurchases increase the value of debt. 
C)  capital gains can be deferred by long-term investors. 
D)  repurchases are associated with increased customer loyalty. 
E)  dividends are not taxed.

Question 3

Another to method to repurchase shares is the ________,in which the firm lists different prices at which it is prepared to buy shares,and shareholders in turn indicate how many shares they are willing to sell at each price.

Accepted Answer

A)  tender offer 
B)  Dutch auction share repurchase 
C)  targeted repurchase 
D)  open market share repurchase 
E)  greenmail repurchase 
A)  tender offer 
B)  Dutch auction share repurchase 
C)  targeted repurchase 
D)  open market share repurchase 
E)  greenmail repurchase

Question 4

Use the information for the question(s) below.
Consider the following tax rates:
  
-In 2006,Luther Incorporated paid a special dividend of $5 per share for the 1 million shares outstanding.If Luther has instead retained that cash permanently and invested it into Treasury bills earning 6%,then the present value (PV)of the additional taxes paid by Luther would be closest to:

Accepted Answer

A)  $.35 million 
B)  $2.90 million 
C)  $1.75 million 
D)  $5.85 million 
E)  $3.25 million 
A)  $.35 million 
B)  $2.90 million 
C)  $1.75 million 
D)  $5.85 million 
E)  $3.25 million

Question 5

What is greenmail?

Accepted Answer

Greenmail is a targeted share

Question 6

Explain the different effects on a firm's share price for a dividend payment versus a share repurchase.

Accepted Answer

With a dividend payment,the sh

Question 7

A firm issues a 100% stock dividend.This transaction is equivalent to a:

Accepted Answer

A)  3:2 stock split. 
B)  1:2 stock split 
C)  100:1 stock split 
D)  1:1 stock split 
E)  2:1 stock split 
A)  3:2 stock split. 
B)  1:2 stock split 
C)  100:1 stock split 
D)  1:1 stock split 
E)  2:1 stock split

Question 8

What are the different ways a firm can repurchase shares?

Accepted Answer

There are three possible ways

Question 9

When a firm purchases shares directly from a major shareholder it is also known as a(n)

Accepted Answer

A)  open market purchase. 
B)  tender offer. 
C)  targeted repurchase. 
D)  greenmail. 
E)  Dutch auction. 
A)  open market purchase. 
B)  tender offer. 
C)  targeted repurchase. 
D)  greenmail. 
E)  Dutch auction.

Question 10

Dividend payments that are the result of liquidation of assets are known as ________ and are taxed as capital gains.

Accepted Answer

A)  return of capital 
B)  rolling dividends 
C)  alternate payments 
D)  private earnings 
E)  special dividends 
A)  return of capital 
B)  rolling dividends 
C)  alternate payments 
D)  private earnings 
E)  special dividends

Question 11

Different investor groups have differing dividend policy preferences that create clientele effects in which dividend policy of a firm is optimized for its investors.

Accepted Answer

A) True 
 B)False

Question 12

The idea that dividend changes reflect managers' views about a firm's future earnings prospects is called the ________ hypothesis.

Accepted Answer

A)  signalling 
B)  predictor 
C)  instrumental 
D)  pecking order 
E)  dividend growth 
A)  signalling 
B)  predictor 
C)  instrumental 
D)  pecking order 
E)  dividend growth

Question 13

What is the difference between a regular dividend and a liquidating dividend?

Accepted Answer

A regular dividend comes from

Question 14

A firm issues a 50% stock dividend.This transaction is equivalent to a:

Accepted Answer

A)  3:2 stock split. 
B)  1:2 stock split 
C)  2:1 stock split 
D)  2:3 stock split 
E)  1:1 stock split 
A)  3:2 stock split. 
B)  1:2 stock split 
C)  2:1 stock split 
D)  2:3 stock split 
E)  1:1 stock split

Question 15

With perfect capital markets,an open market repurchase increases the stock price as the number of outstanding shares is decreased.

Accepted Answer

A) True 
 B)False

Question 16

Use the information for the question(s) below.
Luther Industries has $5 million in excess cash and 1 million shares outstanding. Luther is considering investing the cash in one-year Treasury bills that are currently paying 5% interest and then using the cash to pay a dividend next year. Alternatively, Luther can pay the cash out as a dividend immediately and the shareholders can invest in the Treasury bills themselves. Assume that capital markets are perfect.
-If Luther invests the excess cash in Treasury bills,then the dividend per share next year will be closest to:

Accepted Answer

A)  $5.00 
B)  $5.25 
C)  $4.75 
D)  $1.05 
E)  $4.50 
A)  $5.00 
B)  $5.25 
C)  $4.75 
D)  $1.05 
E)  $4.50

Question 17

Use the information for the question(s) below.
Omicron Technologies has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Omicron's unlevered cost of capital is 10% and there are 10 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock.
-Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.Omicron's cum-dividend price is closest to:

Accepted Answer

A)  $50.00 
B)  $40.00 
C)  $5.00 
D)  $45.00 
E)  $35.00 
A)  $50.00 
B)  $40.00 
C)  $5.00 
D)  $45.00 
E)  $35.00

Question 18

The date on which a firm pays out dividends is called the ________ date.

Accepted Answer

A)  declaration 
B)  record 
C)  ex-dividend 
D)  distribution 
E)  dividend 
A)  declaration 
B)  record 
C)  ex-dividend 
D)  distribution 
E)  dividend

Question 19

Use the information for the question(s) below.
Omicron Technologies has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Omicron's unlevered cost of capital is 10% and there are 10 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock.
-A firm has $75 million of assets that includes $12 million of cash and 25 million shares outstanding.If the firm uses $12 million of cash to repurchase shares,what is the new price per share?

Accepted Answer

A)  $1 
B)  $2 
C)  $3 
D)  $4 
E)  $5 
A)  $1 
B)  $2 
C)  $3 
D)  $4 
E)  $5

Question 20

A firm has $300 million of assets that includes $50 million of cash and 10 million shares outstanding.The firm uses $30 million of its cash to pay dividends.If an investor has 1000 shares,how many shares must he sell to create a homemade dividend of $3900?

Accepted Answer

A)  33.3 shares 
B)  40.2 shares 
C)  50.5 shares 
D)  60.3 shares 
E)  65.6 shares 
A)  33.3 shares 
B)  40.2 shares 
C)  50.5 shares 
D)  60.3 shares 
E)  65.6 shares

Exam 17: Payout Policy

The Record Date falls before the Ex-Dividend Date.

Share repurchases have a tax advantage over dividends because

Another to method to repurchase shares is the ________,in which the firm lists different prices at which it is prepared to buy shares,and shareholders in turn indicate how many shares they are willing to sell at each price.

What is greenmail?

Explain the different effects on a firm's share price for a dividend payment versus a share repurchase.

A firm issues a 100% stock dividend.This transaction is equivalent to a:

What are the different ways a firm can repurchase shares?

When a firm purchases shares directly from a major shareholder it is also known as a(n)

Dividend payments that are the result of liquidation of assets are known as ________ and are taxed as capital gains.

Different investor groups have differing dividend policy preferences that create clientele effects in which dividend policy of a firm is optimized for its investors.

The idea that dividend changes reflect managers' views about a firm's future earnings prospects is called the ________ hypothesis.

What is the difference between a regular dividend and a liquidating dividend?

A firm issues a 50% stock dividend.This transaction is equivalent to a:

With perfect capital markets,an open market repurchase increases the stock price as the number of outstanding shares is decreased.

The date on which a firm pays out dividends is called the ________ date.

A firm has $300 million of assets that includes $50 million of cash and 10 million shares outstanding.The firm uses $30 million of its cash to pay dividends.If an investor has 1000 shares,how many shares must he sell to create a homemade dividend of $3900?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

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