Centurion Alarms recently declared a 10 percent stock dividend. Prior to the stock dividend, the equity section on Centurion's balance sheet was: $\begin{array}{lr} \text { Common stock ( } 100,000 \text { shares outstanding, \$1 par value) } & \$ 100,000 \\ \text { Additional paid-in capital } & 60,000 \\ \text { Retained earnings } & \underline{90,000} \\ \text { Total common shareholders' equity } & \underline{\$ 250,000} \end{array}$ Centurion's stock currently sells for $4 per share. After the stock dividend is paid, the amount in the Common stock account should be _______ and the amount in the Retained earnings account should be ______.

A) $110,000; $50,000 B) $100,000; $90,000 C) $140,000; $50,000 D) $100,000; $50,000 E) $90,000; $110,000 A) $110,000; $50,000 B) $100,000; $90,000 C) $140,000; $50,000 D) $100,000; $50,000 E) $90,000; $110,000

Exam 13: Distribution of Retained Earnings: Dividends and Stock Repurchases

Which of the following hypotheses/theories asserts that there exists no optimal dividend policy, because a firm's dividend policy does not affect its value.

(Multiple Choice)

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Question 21

Alabama Industrial Manufacturers (AIM) follows the constant payout ratio dividend policy by paying out 70 percent of earnings each year. This year AIM expects the dividend payment to be 5 percent higher than last year's payment, which was $280,000. What is the amount of net income that AIM expects to generate this year?

(Multiple Choice)

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Question 22

Firms with a large number of acceptable capital budgeting projects generally have high dividend-payout ratios.

(True/False)

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Question 23

Centurion Alarms recently declared a 10 percent stock dividend. Prior to the stock dividend, the equity section on Centurion's balance sheet was: Common stock ( 100,000 shares outstanding, \1 par value) \ 100,000 Additional paid-in capital 60,000 Retained earnings Total common shareholders' equity Centurion's stock currently sells for $4 per share. After the stock dividend is paid, the amount in the Common stock account should be _ and the amount in the Retained earnings account should be .

(Multiple Choice)

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Question 24

Firms that follow the constant payout ratio dividend policy have:

(Multiple Choice)

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Question 25

Everything else equal, generally a firm will set a low dividend payout ratio and finance capital budgeting projects using retained earnings rather than through the sale of new common stock when the:

(Multiple Choice)

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Question 26

Which of the following hypotheses/theories suggests that investors regard a change in dividend payments as a signal that the firm's management expects future earnings to also change?

(Multiple Choice)

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Question 27

Which of the following statements about stock splits is correct?

(Multiple Choice)

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Question 28

Everything else equal, if stockholders prefer current income to future income (i.e., capital gains), a firm's cost of equity will:

(Multiple Choice)

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Question 29

One reason a firm repurchases its stock is to distribute excess funds.

(True/False)

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Question 30

Which of the following dividend payment policies represents a compromise between a stable, predictable dividend policy and a constant payout ratio policy?

(Multiple Choice)

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Question 31

Which of the following is an advantage of stock repurchases?

(Multiple Choice)

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Question 32

Everything else equal, if a firm increases the dividend that it pays from $4 to $5:

(Multiple Choice)

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Question 33

According to the free cash flow hypothesis that has been proposed to explain investors' reactions to dividend policy changes, a firm:

(Multiple Choice)

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Question 34

According to the free cash flow hypothesis that has been proposed to explain how dividend policies affect stock prices, cash flows that cannot be reinvested in positive net present value projects should be retained and reinvested by the firm.

(True/False)

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Question 35

Which of the following is an important factor that affects dividend policies of companies around the world?

(Multiple Choice)

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Question 36

The dividend policy that strikes a balance between current dividends and the firm's future growth is called the ______ policy.

(Multiple Choice)

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Question 37

Many firms offer to reinvest stockholders' cash dividends in new shares of its stock through dividend reinvestment plans (DRIP).

(True/False)

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Question 38

Mom's Apple Pies (MAP) earned $500,000 this year. The company follows the residual dividend policy when paying dividends. MAP has determined that it needs a total of $600,000 for investment in capital budgeting projects this year. If the company's debt/asset ratio is 40 percent, what will its dividend payout ratio be this year? MAP has no preferred stock.

(Multiple Choice)

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Question 39

The clientele effect hypothesis that has been proposed to explain how dividend policies affect stock prices suggests that a firm's dividend policy can provide information about management's behavior with respect to wealth maximization.

(True/False)

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Question 40

Showing 21 - 40 of 43

Which of the following hypotheses/theories asserts that there exists no optimal dividend policy, because a firm's dividend policy does not affect its value.

Firms with a large number of acceptable capital budgeting projects generally have high dividend-payout ratios.

Firms that follow the constant payout ratio dividend policy have:

Everything else equal, generally a firm will set a low dividend payout ratio and finance capital budgeting projects using retained earnings rather than through the sale of new common stock when the:

Which of the following hypotheses/theories suggests that investors regard a change in dividend payments as a signal that the firm's management expects future earnings to also change?

Which of the following statements about stock splits is correct?

Everything else equal, if stockholders prefer current income to future income (i.e., capital gains), a firm's cost of equity will:

One reason a firm repurchases its stock is to distribute excess funds.

Which of the following dividend payment policies represents a compromise between a stable, predictable dividend policy and a constant payout ratio policy?

Which of the following is an advantage of stock repurchases?

Everything else equal, if a firm increases the dividend that it pays from $4 to $5:

According to the free cash flow hypothesis that has been proposed to explain investors' reactions to dividend policy changes, a firm:

According to the free cash flow hypothesis that has been proposed to explain how dividend policies affect stock prices, cash flows that cannot be reinvested in positive net present value projects should be retained and reinvested by the firm.

Which of the following is an important factor that affects dividend policies of companies around the world?

The dividend policy that strikes a balance between current dividends and the firm's future growth is called the ______ policy.

Many firms offer to reinvest stockholders' cash dividends in new shares of its stock through dividend reinvestment plans (DRIP).

The clientele effect hypothesis that has been proposed to explain how dividend policies affect stock prices suggests that a firm's dividend policy can provide information about management's behavior with respect to wealth maximization.

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debt Characteristics and Valuation

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

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