Question 1

Dividend payments from foreign subsidiaries represent

Accepted Answer

A)  a movement from a weak to a stronger currency 
B)  the primary means of transferring funds to the parent company 
C)  a way to avoid taxes 
D)  the effects of exchange risk 
A)  a movement from a weak to a stronger currency 
B)  the primary means of transferring funds to the parent company 
C)  a way to avoid taxes 
D)  the effects of exchange risk

Question 2

What is a DRIP and how does it work?

Accepted Answer

A DRIP is a dividend reinvestment plan.

Question 3

Finance researcher Myron Gordon argues that

Accepted Answer

A)  risk-averse shareholders may prefer some dividends over the promise of future capital gains if the interest rate is expected to decline 
B)  dividends reduce uncertainty, and thus the payment of dividends will increase the firm's value 
C)  the clientele effect has no influence on share value 
D)  the existence of transaction costs has no impact on the dividend decision 
A)  risk-averse shareholders may prefer some dividends over the promise of future capital gains if the interest rate is expected to decline 
B)  dividends reduce uncertainty, and thus the payment of dividends will increase the firm's value 
C)  the clientele effect has no influence on share value 
D)  the existence of transaction costs has no impact on the dividend decision

Question 4

Metromat has the following equity accounts on its balance sheet:  
The current market price of Metromat's shares is $16. If the firm declares a 15% stock dividend and a $0.15 per share cash dividend, what will be the impact on contributed capital in excess of par? Assume a marginal tax rate of 40%.

Accepted Answer

A)  decreases $2.56 million 
B)  increases $5.04 million 
C)  increases $5.76 million 
D)  does not change 
A)  decreases $2.56 million 
B)  increases $5.04 million 
C)  increases $5.76 million 
D)  does not change

Question 5

Rank in chronological sequence the payment date, ex-dividend date, declaration date, and record date.

Accepted Answer

A)  record date, declaration date, ex-dividend date, payment date 
B)  declaration date, record date, ex-dividend date, payment date 
C)  declaration date, record date, payment date, ex- dividend date 
D)  declaration date, ex-dividend date, record date, payment date 
A)  record date, declaration date, ex-dividend date, payment date 
B)  declaration date, record date, ex-dividend date, payment date 
C)  declaration date, record date, payment date, ex- dividend date 
D)  declaration date, ex-dividend date, record date, payment date

Question 6

Wrenn Corp. has 5.6 million shares outstanding, interest expenses of $4.4 million, and depreciation expenses of $3.7 million. What is Wrenn's operating income if the dividend per share is $0.80 and the dividend payout ratio is 35%? Assume a marginal tax rate of 40%.

Accepted Answer

A)  $15.89 million 
B)  $25.73 million 
C)  $21.33 million 
D)  $29.43 million 
A)  $15.89 million 
B)  $25.73 million 
C)  $21.33 million 
D)  $29.43 million

Question 7

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 8

When a firm initiates the repurchase of stock through a tender offer, it is giving the shareholders:

Accepted Answer

A)  treasury stock notification 
B)  a put option 
C)  a call option 
D)  a futures option 
A)  treasury stock notification 
B)  a put option 
C)  a call option 
D)  a futures option

Question 9

Haulsee Inc. paid a quarterly dividend of $0.12 and has announced both a 10% stock dividend and an increase in the quarterly dividend to $0.14. What is the effective rate of the dividend increase?

Accepted Answer

A)  26.7% 
B)  18.3% 
C)  28.3% 
D)  15.7% 
A)  26.7% 
B)  18.3% 
C)  28.3% 
D)  15.7%

Question 10

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 11

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 12

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 13

Cafe de Oro earns $4.25 per share and has a dividend payout ratio of 0.40. If Cafe de Oro has a capital budget of $200,000 and 70,000 shares outstanding, what are the annual dividends per share?

Accepted Answer

A)  $1.70 
B)  $1.39 
C)  $2.55 
D)  $4.00 
A)  $1.70 
B)  $1.39 
C)  $2.55 
D)  $4.00

Question 14

Which of the following is not a direct result of a stock dividend?

Accepted Answer

A)  the number of shares outstanding is increased 
B)  the market price of each outstanding share is increased 
C)  the amounts shown in the firm's capital accounts are redistributed 
D)  the per-share price of the stock goes up 
A)  the number of shares outstanding is increased 
B)  the market price of each outstanding share is increased 
C)  the amounts shown in the firm's capital accounts are redistributed 
D)  the per-share price of the stock goes up

Question 15

The passive residual dividend policy asserts that

Accepted Answer

A)  dividends should be paid out only if the firm does not have enough acceptable investment projects to utilize all earnings internally. 
B)  dividends should be paid only when the firm has ready access to new equity markets 
C)  retained earnings, being the residual earnings of the firm, should always be paid out to existing stockholders 
D)  investment policy and dividend policy decisions should always be made independently 
A)  dividends should be paid out only if the firm does not have enough acceptable investment projects to utilize all earnings internally. 
B)  dividends should be paid only when the firm has ready access to new equity markets 
C)  retained earnings, being the residual earnings of the firm, should always be paid out to existing stockholders 
D)  investment policy and dividend policy decisions should always be made independently

Question 16

In order for a stock to qualify for inclusion on the "legal lists," a firm must

Accepted Answer

A)  register with the Securities Exchange Commission (SE
C)  
B)  have assets in excess of $500,000 
C)  have 10 continuous profitable quarters 
D)  have a record of continuous and stable dividends 
A)  register with the Securities Exchange Commission (SE
C)  
B)  have assets in excess of $500,000 
C)  have 10 continuous profitable quarters 
D)  have a record of continuous and stable dividends

Exam 15: Dividend Policy

Dividend payments from foreign subsidiaries represent

What is a DRIP and how does it work?

Finance researcher Myron Gordon argues that

Metromat has the following equity accounts on its balance sheet: The current market price of Metromat's shares is $16. If the firm declares a 15% stock dividend and a $0.15 per share cash dividend, what will be the impact on contributed capital in excess of par? Assume a marginal tax rate of 40%.

Rank in chronological sequence the payment date, ex-dividend date, declaration date, and record date.

Wrenn Corp. has 5.6 million shares outstanding, interest expenses of $4.4 million, and depreciation expenses of $3.7 million. What is Wrenn's operating income if the dividend per share is $0.80 and the dividend payout ratio is 35%? Assume a marginal tax rate of 40%.

When a firm initiates the repurchase of stock through a tender offer, it is giving the shareholders:

Haulsee Inc. paid a quarterly dividend of $0.12 and has announced both a 10% stock dividend and an increase in the quarterly dividend to $0.14. What is the effective rate of the dividend increase?

In the theoretical world of Miller and Modigliani

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

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?

Cafe de Oro earns $4.25 per share and has a dividend payout ratio of 0.40. If Cafe de Oro has a capital budget of $200,000 and 70,000 shares outstanding, what are the annual dividends per share?

Which of the following is not a direct result of a stock dividend?

The passive residual dividend policy asserts that

In order for a stock to qualify for inclusion on the "legal lists," a firm must

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

Taxes

Filters