Question 1

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 2

Dividend payments reduce all of the following balance sheet items except

Accepted Answer

A)  cash 
B)  fixed assets 
C)  stockholder's equity 
D)  retained earnings 
A)  cash 
B)  fixed assets 
C)  stockholder's equity 
D)  retained earnings

Question 3

Sorsi has declared a 15% stock dividend. If the stock was selling for $34 before the ex-dividend date, what should its price be on the ex-dividend date?

Accepted Answer

A)  $34.00 
B)  $29.57 
C)  $28.90 
D)  $30.91 
A)  $34.00 
B)  $29.57 
C)  $28.90 
D)  $30.91

Question 4

According to the ____ dividend policy, a firm that has more funds than it needs should pay a cash dividend to shareholders.

Accepted Answer

A)  constant payout ratio 
B)  stable dollar 
C)  passive residual 
D)  reinvestment 
A)  constant payout ratio 
B)  stable dollar 
C)  passive residual 
D)  reinvestment

Question 5

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 6

Nova earned $7.20 per share and maintains a stable payout ratio of 60 percent. Nova has 1,000,000 shares outstanding and a capital budget of $5 million. If Nova maintains a debt ratio of 0.50, what were the dividends per share?

Accepted Answer

A)  $4.32 
B)  $2.88 
C)  $2.20 
D)  cannot be determined from the information provided 
A)  $4.32 
B)  $2.88 
C)  $2.20 
D)  cannot be determined from the information provided

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

The Earth Shoe Company, whose stock has a market value of $20, has the following common equity accounts on its balance sheet:  
If the firm declares a 5% stock dividend, what will be the retained earnings figure after the dividend is paid?

Accepted Answer

A)  $1,000,000 
B)  $51,000,000 
C)  $14,950,000 
D)  $5,000,000 
A)  $1,000,000 
B)  $51,000,000 
C)  $14,950,000 
D)  $5,000,000

Question 9

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 10

Which phrase below best summarizes the arguments supporting a stable dollar dividend policy?

Accepted Answer

A)  earnings stability 
B)  beta 
C)  capital structure 
D)  informational content 
A)  earnings stability 
B)  beta 
C)  capital structure 
D)  informational content

Question 11

Dividend reinvestment plans involve the purchase of

Accepted Answer

A)  newly issued stock 
B)  existing stock 
C)  letter stock 
D)  both newly issued and existing stock 
A)  newly issued stock 
B)  existing stock 
C)  letter stock 
D)  both newly issued and existing stock

Question 12

The Wagner Company tries to follow a pure "residual" dividend policy. Earnings and dividends last year were $100 million and $20 million respectively. Anticipated earnings for this year are $80 million. The company is financed completely with common equity. The required rate of return on retained earnings is 15 percent and the cost of new equity is 16 percent. If Wagner has $70 million of investment projects having expected returns greater than 15 percent, determine the total amount of dividends Wagner should pay.

Accepted Answer

A)  None 
B)  $10 million 
C)  $20 million in dividends and raise needed investment funds externally 
D)  $80 million in dividends and raise needed investment funds externally 
A)  None 
B)  $10 million 
C)  $20 million in dividends and raise needed investment funds externally 
D)  $80 million in dividends and raise needed investment funds externally

Question 13

The dividend clientele effect concept was originally developed by

Accepted Answer

A)  Myron Gordon 
B)  Merton Miller and Franco Modigliani 
C)  Milton Friedman 
D)  Paul Samuelson 
A)  Myron Gordon 
B)  Merton Miller and Franco Modigliani 
C)  Milton Friedman 
D)  Paul Samuelson

Question 14

Explain the "clientele effect".

Accepted Answer

Firms develop their own clientele of inv

Question 15

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 16

Which of the following would be considered an alternative dividend policy?
I. Passive residual approach
II. Increasing dollar dividend approach

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 17

Saturn Corporation has just declared a 25 percent stock dividend. The stock was selling for $18 before the stock dividend. The stock will pay a quarterly cash dividend of 8 cents per share after the stock dividend. If the 8-cent dividend is maintained over the next year what is the post-stock dividend yield?

Accepted Answer

A)  2.13% 
B)  2.22% 
C)  0.56% 
D)  1.44% 
A)  2.13% 
B)  2.22% 
C)  0.56% 
D)  1.44%

Question 18

Heintz Corp. has just declared a 10% stock dividend. The company's pre-stock dividend common stockholders' equity was as follows:  
If the common stock of Heintz was selling at $32 a share prior to the stock dividend, what will the retained earnings be after the stock dividend is distributed?

Accepted Answer

A)  $ 65,500,000 
B)  $118,500,000 
C)  $ 66,000,000 
D)  $ 97,500,000 
A)  $ 65,500,000 
B)  $118,500,000 
C)  $ 66,000,000 
D)  $ 97,500,000

Question 19

When a firm purchases its own stock in the open market, the repurchased shares become known as ____.

Accepted Answer

A)  treasury stock 
B)  preferred stock 
C)  option stock 
D)  reinvestment stock 
A)  treasury stock 
B)  preferred stock 
C)  option stock 
D)  reinvestment stock

Question 20

HiTec is growing fast and wishes to retain all its earnings to finance future growth. Instead of a cash dividend, HiTec declares a 10 percent stock dividend. If the price per share of HiTec stock is $30 before the ex-dividend date, what will be the price on the ex-dividend date?

Accepted Answer

A)  $27.27 
B)  $27.94 
C)  $33.00 
D)  $27.00 
A)  $27.27 
B)  $27.94 
C)  $33.00 
D)  $27.00

Exam 15: Dividend Policy

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

Dividend payments reduce all of the following balance sheet items except

Sorsi has declared a 15% stock dividend. If the stock was selling for $34 before the ex-dividend date, what should its price be on the ex-dividend date?

According to the ____ dividend policy, a firm that has more funds than it needs should pay a cash dividend to shareholders.

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:

Nova earned $7.20 per share and maintains a stable payout ratio of 60 percent. Nova has 1,000,000 shares outstanding and a capital budget of $5 million. If Nova maintains a debt ratio of 0.50, what were the dividends per share?

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

The Earth Shoe Company, whose stock has a market value of $20, has the following common equity accounts on its balance sheet: If the firm declares a 5% stock dividend, what will be the retained earnings figure after the dividend is paid?

The net effect of a stock dividend is to

Which phrase below best summarizes the arguments supporting a stable dollar dividend policy?

Dividend reinvestment plans involve the purchase of

The dividend clientele effect concept was originally developed by

Explain the "clientele effect".

The record date in the normal dividend payment procedure is

Which of the following would be considered an alternative dividend policy? I. Passive residual approach II. Increasing dollar dividend approach

Heintz Corp. has just declared a 10% stock dividend. The company's pre-stock dividend common stockholders' equity was as follows: If the common stock of Heintz was selling at $32 a share prior to the stock dividend, what will the retained earnings be after the stock dividend is distributed?

When a firm purchases its own stock in the open market, the repurchased shares become known as ____.

HiTec is growing fast and wishes to retain all its earnings to finance future growth. Instead of a cash dividend, HiTec declares a 10 percent stock dividend. If the price per share of HiTec stock is $30 before the ex-dividend date, what will be the price on the ex-dividend date?

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

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

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Capital Structure Management in Practice

Working Capital Policy and Short-term Financing

The Management of Cash and Marketable Securities

Management of Accounts Receivable and Inventories

Lease and Intermediate-term Financing

Financing With Derivatives

Risk Management

International Financial Management

Corporate Restructuring

Continuous Compounding and Discounting

Mutually Exclusive Investments Having Unequal Lives

Breakeven Analysis

Bond Refunding Analysis

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