Question 1

The fact that firms continue to issue dividends despite their tax disadvantage is often referred to as the

Accepted Answer

A)  issuance puzzle. 
B)  dividend puzzle. 
C)  payback puzzle. 
D)  policy puzzle. 
E)  capital structure puzzle. 
A)  issuance puzzle. 
B)  dividend puzzle. 
C)  payback puzzle. 
D)  policy puzzle. 
E)  capital structure puzzle.

Question 2

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 you own 2500 shares of Omicron stock and that Omicron uses the entire $50 million to pay a special dividend.Suppose you are unhappy with Omicron's decision and would prefer that Omicron used the excess cash to repurchase shares.The number of shares that you would have to buy in order to undo the special cash dividend that Omicron paid is closest to:

Accepted Answer

A)  125 
B)  275 
C)  250 
D)  310 
E)  200 
A)  125 
B)  275 
C)  250 
D)  310 
E)  200

Question 3

An alternate way to pay investors is when the firm uses cash to buy shares of its own outstanding stock,also known as

Accepted Answer

A)  dividend investment. 
B)  retained earnings. 
C)  initial public offering. 
D)  share repurchases. 
E)  seasoned equity offering. 
A)  dividend investment. 
B)  retained earnings. 
C)  initial public offering. 
D)  share repurchases. 
E)  seasoned equity offering.

Question 4

In a stock split or stock dividend,the company issues additional shares rather than cash to its shareholders.

Accepted Answer

A) True 
 B)False

Question 5

A one-time payment to shareholders that is much larger than a regular dividend is often referred to as a(n)________ dividend.

Accepted Answer

A)  taxable 
B)  divesting 
C)  special 
D)  ex-day 
E)  extra 
A)  taxable 
B)  divesting 
C)  special 
D)  ex-day 
E)  extra

Question 6

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 to repurchase shares.The number of shares that Omicron will repurchase is closest to:

Accepted Answer

A)  1.0 million 
B)  1.2 million 
C)  1.1 million 
D)  0.9 million 
E)  1.5 million 
A)  1.0 million 
B)  1.2 million 
C)  1.1 million 
D)  0.9 million 
E)  1.5 million

Question 7

Use the information for the question(s) below.
The JRN Corporation will pay a constant dividend of $3 per share per year in perpetuity. Assume that all investors pay a 20% tax on dividends and that there is no capital gains tax. The cost of capital for investing in JRN stock is 12%.
-The WTC Corporation will pay a constant dividend of $3.20 per share,per year,in perpetuity.If all investors pay a 15% tax on dividends,there is no capital gains tax,and the cost of capital for investing in WTC stock is 9%,what is the price for a share of WTC stock?

Accepted Answer

A)  $30.22 
B)  $26.67 
C)  $18.77 
D)  $16.45 
E)  $15.76 
A)  $30.22 
B)  $26.67 
C)  $18.77 
D)  $16.45 
E)  $15.76

Question 8

A firm has $500 million of assets that includes $50 million of cash and 10 million shares outstanding.The firm uses $50 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 $6575?

Accepted Answer

A)  25 shares 
B)  30 shares 
C)  35 shares 
D)  40 shares 
E)  45 shares 
A)  25 shares 
B)  30 shares 
C)  35 shares 
D)  40 shares 
E)  45 shares

Question 9

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 you own 2500 shares of Omicron stock and that Omicron uses the entire $50 million to repurchase shares.Suppose you are unhappy with Omicron's decision and would prefer that Omicron used the excess cash to pay a special dividend.The number of shares that you would have to sell in order to receive the same amount of cash as if Omicron paid the special dividend is closest to:

Accepted Answer

A)  275 
B)  310 
C)  125 
D)  250 
E)  175 
A)  275 
B)  310 
C)  125 
D)  250 
E)  175

Question 10

A firm issues a 75% stock dividend.This transaction is equivalent to a:

Accepted Answer

A)  3:2 stock split. 
B)  4:3 stock split 
C)  7:4 stock split 
D)  3:4 stock split 
E)  1:1 stock split 
A)  3:2 stock split. 
B)  4:3 stock split 
C)  7:4 stock split 
D)  3:4 stock split 
E)  1:1 stock split

Question 11

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 to repurchase shares.The amount of the regular yearly dividends in the future is closest to:

Accepted Answer

A)  $9.00 
B)  $5.00 
C)  $4.50 
D)  $4.00 
E)  $5.50 
A)  $9.00 
B)  $5.00 
C)  $4.50 
D)  $4.00 
E)  $5.50

Question 12

A firm may announce its intention to buy its own shares in the open market like any other investor,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 13

The date on which the board of directors of a company authorizes the dividend is called the ________ date.

Accepted Answer

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

Question 14

Suppose a firm does not pay a dividend but repurchases stock using $20 million of cash.The market value of the firm decreases by

Accepted Answer

A)  $20 million. 
B)  -$20 million. 
C)  0. 
D)  $40 million. 
E)  -$40 million. 
A)  $20 million. 
B)  -$20 million. 
C)  0. 
D)  $40 million. 
E)  -$40 million.

Question 15

If there is a tax disadvantage to retaining cash,why do some firms accumulate large cash balances?

Accepted Answer

Generally,firms retain cash ba

Question 16

When a firm repurchases shares,the supply of shares is ________,but at the same time,the firm's assets ________.

Accepted Answer

A)  reduced, decline 
B)  increased, decline 
C)  reduced, increase 
D)  increased, increase 
E)  reduced, are unchanged 
A)  reduced, decline 
B)  increased, decline 
C)  reduced, increase 
D)  increased, increase 
E)  reduced, are unchanged

Question 17

In perfect capital markets,buying and selling securities is a zero-NPV transaction,so retaining cash versus paying it out does not affect firm value.

Accepted Answer

A) True 
 B)False

Question 18

Use the information for the question(s) below.
The JRN Corporation will pay a constant dividend of $3 per share per year in perpetuity. Assume that all investors pay a 20% tax on dividends and that there is no capital gains tax. The cost of capital for investing in JRN stock is 12%.
-Assume that management makes a surprise announcement that JRN will no longer pay dividends but will use the cash to repurchase stock instead.The price of a share of JRN's stock is now closest to:

Accepted Answer

A)  $20.00 
B)  $25.00 
C)  $18.00 
D)  $24.00 
E)  $16.00 
A)  $20.00 
B)  $25.00 
C)  $18.00 
D)  $24.00 
E)  $16.00

Question 19

Corporations enjoy a tax advantage associated with dividends due to

Accepted Answer

A)  personal tax exemptions. 
B)  the 100% exclusion allowance. 
C)  laddered tax rates. 
D)  concave tax structure. 
E)  tax carryforwards. 
A)  personal tax exemptions. 
B)  the 100% exclusion allowance. 
C)  laddered tax rates. 
D)  concave tax structure. 
E)  tax carryforwards.

Question 20

Long-term investors can defer capital gains tax until they sell and,therefore,there is a tax advantage for share repurchases over dividends.

Accepted Answer

A) True 
 B)False

The fact that firms continue to issue dividends despite their tax disadvantage is often referred to as the

An alternate way to pay investors is when the firm uses cash to buy shares of its own outstanding stock,also known as

In a stock split or stock dividend,the company issues additional shares rather than cash to its shareholders.

A one-time payment to shareholders that is much larger than a regular dividend is often referred to as a(n)________ dividend.

A firm has $500 million of assets that includes $50 million of cash and 10 million shares outstanding.The firm uses $50 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 $6575?

A firm issues a 75% stock dividend.This transaction is equivalent to a:

A firm may announce its intention to buy its own shares in the open market like any other investor,also known as a(n)

The date on which the board of directors of a company authorizes the dividend is called the ________ date.

Suppose a firm does not pay a dividend but repurchases stock using $20 million of cash.The market value of the firm decreases by

If there is a tax disadvantage to retaining cash,why do some firms accumulate large cash balances?

When a firm repurchases shares,the supply of shares is ,but at the same time,the firm's assets .

In perfect capital markets,buying and selling securities is a zero-NPV transaction,so retaining cash versus paying it out does not affect firm value.

Corporations enjoy a tax advantage associated with dividends due to

Long-term investors can defer capital gains tax until they sell and,therefore,there is a tax advantage for share repurchases over dividends.

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

Filters

Exam 17: Payout Policy

The fact that firms continue to issue dividends despite their tax disadvantage is often referred to as the

An alternate way to pay investors is when the firm uses cash to buy shares of its own outstanding stock,also known as

In a stock split or stock dividend,the company issues additional shares rather than cash to its shareholders.

A one-time payment to shareholders that is much larger than a regular dividend is often referred to as a(n)________ dividend.

A firm has $500 million of assets that includes $50 million of cash and 10 million shares outstanding.The firm uses $50 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 $6575?

A firm issues a 75% stock dividend.This transaction is equivalent to a:

A firm may announce its intention to buy its own shares in the open market like any other investor,also known as a(n)

The date on which the board of directors of a company authorizes the dividend is called the ________ date.

Suppose a firm does not pay a dividend but repurchases stock using $20 million of cash.The market value of the firm decreases by

If there is a tax disadvantage to retaining cash,why do some firms accumulate large cash balances?

When a firm repurchases shares,the supply of shares is ________,but at the same time,the firm's assets ________.

In perfect capital markets,buying and selling securities is a zero-NPV transaction,so retaining cash versus paying it out does not affect firm value.

Corporations enjoy a tax advantage associated with dividends due to

Long-term investors can defer capital gains tax until they sell and,therefore,there is a tax advantage for share repurchases over dividends.

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

Filters

When a firm repurchases shares,the supply of shares is ,but at the same time,the firm's assets .