Question 1

Why are dividend changes rather than their absolute level perceived to be more important to managers and shareholders?

Accepted Answer

A) Managers only change dividends under threatening conditions 
B) Dividend changes are thought to signal future expectations 
C) MM states that the absolute level of dividends is irrelevant 
D) Changes determine whether borrowing must occur 
A) Managers only change dividends under threatening conditions 
B) Dividend changes are thought to signal future expectations 
C) MM states that the absolute level of dividends is irrelevant 
D) Changes determine whether borrowing must occur B

Question 2

ABC Corp.stock is selling for $30 per share when a 10% stock dividend is declared.If you own 100 shares of ABC Corp.then you will receive:

Accepted Answer

A) $3 
B) $3 times 100 shares = $300 
C) $300 plus 10 shares of ABC Corp 
D) 10 shares of ABC Corp 
A) $3 
B) $3 times 100 shares = $300 
C) $300 plus 10 shares of ABC Corp 
D) 10 shares of ABC Corp D

Question 3

How can a 10% dividend be "homemade" by an investor that owns 100 non-dividend-paying shares priced at $20 each?

Accepted Answer

A) Sell 10 shares and retain 90 shares priced at $18 
B) Sell 10 shares and retain 90 shares priced at $20 
C) Sell 10 shares and retain 90 shares priced at $22 
D) Dividends can be homemade only by the company 
A) Sell 10 shares and retain 90 shares priced at $18 
B) Sell 10 shares and retain 90 shares priced at $20 
C) Sell 10 shares and retain 90 shares priced at $22 
D) Dividends can be homemade only by the company B

Question 4

An investor owns 5,000 shares, which is 1% of a corporation's outstanding stock before a stock repurchase.The investor did not sell any of his stock during the 25,000 share repurchase.Which of the following statements is correct?

Accepted Answer

A) The investor still owns 1% of the corporation 
B) The stock's price is likely to drop by 5% 
C) The investor owns more than 1% of the corporation 
D) The investor now has 5,250 shares 
A) The investor still owns 1% of the corporation 
B) The stock's price is likely to drop by 5% 
C) The investor owns more than 1% of the corporation 
D) The investor now has 5,250 shares

Question 5

MM's assertion that dividend policy will not affect the value of the firm requires that dividend policy does not:

Accepted Answer

A) Alter the retained earnings of the firm 
B) Affect investment and borrowing policies 
C) Allow the payout ratio to change 
D) Alter the number of outstanding shares 
A) Alter the retained earnings of the firm 
B) Affect investment and borrowing policies 
C) Allow the payout ratio to change 
D) Alter the number of outstanding shares

Question 6

Compare and contrast share repurchases with dividend payouts.

Accepted Answer

Share repurchases are similar to an extr

Question 7

You now own 84 shares of XYZ stock, which is selling for $40 each, 4 of which you just received from the XYZ corporation.XYZ has declared a:

Accepted Answer

A) Stock dividend of 5% 
B) Cash dividend of $4 
C) Stock dividend of 4% 
D) Cash dividend of $160 
A) Stock dividend of 5% 
B) Cash dividend of $4 
C) Stock dividend of 4% 
D) Cash dividend of $160

Question 8

Capital gains may be preferred by investors over dividends even if their tax rates are equal because:

Accepted Answer

A) Taxes on dividends are withheld from paycheques 
B) Taxes on capital gains are paid annually 
C) Taxes on capital gains can be timed 
D) After-tax dividends are less certain than capital gains 
A) Taxes on dividends are withheld from paycheques 
B) Taxes on capital gains are paid annually 
C) Taxes on capital gains can be timed 
D) After-tax dividends are less certain than capital gains

Question 9

According to the MM dividend-irrelevance proposition, since investors do not need dividends to convert their shares to cash, they will not pay higher prices for firms with higher dividend payouts.

Accepted Answer

A) True 
 B)False

Question 10

Dividend policy may be defined as the trade-off between retaining earnings on the one hand and paying out cash and issuing shares on the other.

Accepted Answer

A) True 
 B)False

Question 11

List several advantages and disadvantages of dividend reinvestment plans and stock repurchase plans.

Accepted Answer

Some advantages include:
- Savings to in

Question 12

When a firm announces a two-for-one stock split (in the absence of other new information), investors should expect that:

Accepted Answer

A) Earnings per share will fall by half but stock price will remain the same 
B) Stock price will fall by half but earnings per share will remain the same 
C) Both earnings per share and stock price will remain the same 
D) Both earnings per share and stock price will fall by half 
A) Earnings per share will fall by half but stock price will remain the same 
B) Stock price will fall by half but earnings per share will remain the same 
C) Both earnings per share and stock price will remain the same 
D) Both earnings per share and stock price will fall by half

Question 13

When a company expects to maintain its dividend payments in the future, it will issue:

Accepted Answer

A) Regular dividends 
B) Special dividends 
C) Stock dividends 
D) Extra dividends 
A) Regular dividends 
B) Special dividends 
C) Stock dividends 
D) Extra dividends

Question 14

When a firm declares a special cash dividend of $1 per share, shareholders realize that the:

Accepted Answer

A) Annual dividend will be $4 per share 
B) Dividends are considered regular 
C) Dividend is not likely to be repeated 
D) Stock must be owned prior to the declaration date to receive the dividend 
A) Annual dividend will be $4 per share 
B) Dividends are considered regular 
C) Dividend is not likely to be repeated 
D) Stock must be owned prior to the declaration date to receive the dividend

Question 15

Ignoring the idealized world of MM, why might a higher dividend payout ratio be considered detrimental to firm value?

Accepted Answer

Investors are ultimately interested in a

Question 16

A dividend is declared on January 1, has a with-dividend date of January 19, and a record date of January 26.Which of the following shareholders will not receive the dividend?

Accepted Answer

A) A shareholder who purchases on December 31 
B) A shareholder who purchases on January 10 
C) A shareholder who purchases on January 19 
D) A shareholder who purchases on January 24 
A) A shareholder who purchases on December 31 
B) A shareholder who purchases on January 10 
C) A shareholder who purchases on January 19 
D) A shareholder who purchases on January 24

Question 17

Investors forego the right to the dividend if they purchase after the cum-dividend date.

Accepted Answer

A) True 
 B)False

Question 18

What would you expect to happen to the price of a share of stock on the day it goes ex-dividend? The price should:

Accepted Answer

A) Increase by the amount of the dividend 
B) Decrease by the amount of the dividend 
C) Decrease by one-half the amount of the dividend 
D) Remain constant 
A) Increase by the amount of the dividend 
B) Decrease by the amount of the dividend 
C) Decrease by one-half the amount of the dividend 
D) Remain constant

Question 19

Which of the following is the order in which key dividend dates occur:

Accepted Answer

A) Declaration, with-dividend, record, ex-dividend, payment 
B) Declaration, with-dividend, ex-dividend, record, payment 
C) Record, declaration, with-dividend, payment, ex-dividend 
D) With-dividend, ex-dividend, record, declaration, payment 
A) Declaration, with-dividend, record, ex-dividend, payment 
B) Declaration, with-dividend, ex-dividend, record, payment 
C) Record, declaration, with-dividend, payment, ex-dividend 
D) With-dividend, ex-dividend, record, declaration, payment

Question 20

A company has a retention ratio of 40%, net income of $17 million, and 10 million shares outstanding.What would be the dividend per share for this company?

Accepted Answer

A) 1.10 
B) 1.02 
C) .95 
D) .82 
A) 1.10 
B) 1.02 
C) .95 
D) .82

Exam 18: Long-Term Financial Planning

Why are dividend changes rather than their absolute level perceived to be more important to managers and shareholders?

ABC Corp.stock is selling for $30 per share when a 10% stock dividend is declared.If you own 100 shares of ABC Corp.then you will receive:

How can a 10% dividend be "homemade" by an investor that owns 100 non-dividend-paying shares priced at $20 each?

An investor owns 5,000 shares, which is 1% of a corporation's outstanding stock before a stock repurchase.The investor did not sell any of his stock during the 25,000 share repurchase.Which of the following statements is correct?

MM's assertion that dividend policy will not affect the value of the firm requires that dividend policy does not:

Compare and contrast share repurchases with dividend payouts.

You now own 84 shares of XYZ stock, which is selling for $40 each, 4 of which you just received from the XYZ corporation.XYZ has declared a:

Capital gains may be preferred by investors over dividends even if their tax rates are equal because:

According to the MM dividend-irrelevance proposition, since investors do not need dividends to convert their shares to cash, they will not pay higher prices for firms with higher dividend payouts.

Dividend policy may be defined as the trade-off between retaining earnings on the one hand and paying out cash and issuing shares on the other.

List several advantages and disadvantages of dividend reinvestment plans and stock repurchase plans.

When a firm announces a two-for-one stock split (in the absence of other new information), investors should expect that:

When a company expects to maintain its dividend payments in the future, it will issue:

When a firm declares a special cash dividend of $1 per share, shareholders realize that the:

Ignoring the idealized world of MM, why might a higher dividend payout ratio be considered detrimental to firm value?

A dividend is declared on January 1, has a with-dividend date of January 19, and a record date of January 26.Which of the following shareholders will not receive the dividend?

Investors forego the right to the dividend if they purchase after the cum-dividend date.

What would you expect to happen to the price of a share of stock on the day it goes ex-dividend? The price should:

Which of the following is the order in which key dividend dates occur:

A company has a retention ratio of 40%, net income of $17 million, and 10 million shares outstanding.What would be the dividend per share for this company?

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Payout Policy

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Conclusion

What We Do and Do Not Know About Finance

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