Question 1

Which of the following is not a logical justification for dividend preference (versus capital gains) in the real world?

Accepted Answer

A) Institutional restrictions involving dividends 
B) Higher share prices from higher payouts 
C) A steady source of cash without transaction costs 
D) Differing income tax rates 
A) Institutional restrictions involving dividends 
B) Higher share prices from higher payouts 
C) A steady source of cash without transaction costs 
D) Differing income tax rates

Question 2

Corporations pay regular cash dividends to their:

Accepted Answer

A) Common shareholders 
B) Preferred bondholders 
C) Fixed-rate bondholders 
D) Convertible bondholders 
A) Common shareholders 
B) Preferred bondholders 
C) Fixed-rate bondholders 
D) Convertible bondholders

Question 3

A stock split will affect the stock's price while a stock dividend will not.

Accepted Answer

A) True 
 B)False

Question 4

An investor who currently holds 582 shares because he created a homemade dividend by selling 18 shares has done the equivalent of a:

Accepted Answer

A) 3% increase in dividend yield 
B) 3.1% increase in dividend yield 
C) 3% decrease in dividend yield 
D) 3% increase in ownership of the company 
A) 3% increase in dividend yield 
B) 3.1% increase in dividend yield 
C) 3% decrease in dividend yield 
D) 3% increase in ownership of the company

Question 5

Which of the following processes would not be expected to have an effect on share price?

Accepted Answer

A) Dividend declaration and payment 
B) Stock repurchase 
C) Stock dividend 
D) Stock split 
A) Dividend declaration and payment 
B) Stock repurchase 
C) Stock dividend 
D) Stock split

Question 6

A stock is currently priced at $65 per share and will pay a $4 dividend in one year.What must the stock sell for in one year to meet investors' expectations of a 15% after-tax yield if dividends are taxed at 28%? Ignore capital gains taxes due to investor timing.

Accepted Answer

A) $70.75 
B) $71.87 
C) $73.63 
D) $76.00 After-tax return = 
A) $70.75 
B) $71.87 
C) $73.63 
D) $76.00 After-tax return =

Question 7

Which of the following is not found in John Lintner's "stylized facts" of corporate dividend policies?

Accepted Answer

A) Firms have long-run target dividend payout ratios 
B) Managers focus more on dividend absolute levels than on its changes 
C) Dividend changes follow shifts in long-run, sustainable levels of earnings rather than short-run changes in earnings 
D) Managers are reluctant to make dividend changes that might have to be reversed 
A) Firms have long-run target dividend payout ratios 
B) Managers focus more on dividend absolute levels than on its changes 
C) Dividend changes follow shifts in long-run, sustainable levels of earnings rather than short-run changes in earnings 
D) Managers are reluctant to make dividend changes that might have to be reversed

Question 8

With respect to the proposition that dividend policy does not matter, in order to raise an additional $5,600 in cash by issuing stock, the stock sold must be worth:

Accepted Answer

A) More than $5,600 
B) $2,800 
C) $5,600 
D) Need to know the number of shares issued to calculate 
A) More than $5,600 
B) $2,800 
C) $5,600 
D) Need to know the number of shares issued to calculate

Question 9

Which of the following is not an example of market imperfections that make dividend policy relevant?

Accepted Answer

A) Institutional restrictions on stock holdings 
B) Differences in dividend-payout ratios 
C) Transaction costs such as brokerage fees 
D) Differences among investors in marginal tax rates 
A) Institutional restrictions on stock holdings 
B) Differences in dividend-payout ratios 
C) Transaction costs such as brokerage fees 
D) Differences among investors in marginal tax rates

Question 10

Which statement is true concerning the one-year after-tax return on the following stocks, assuming a 40% tax rate on dividends and a 20% tax rate on capital gains: Stock A is purchased for $50, offers a 5% dividend yield, and is sold for $56; Stock B is purchased for $60, offers no dividend yield, but is sold after one year for $70.

Accepted Answer

A) Stock A's after-tax return is higher by 1.27% 
B) Stock B's after-tax return is higher by 0.73% 
C) Stock A's after-tax return is higher by 0.27% 
D) Stock B's after-tax return is higher by 0.58% After-tax ReturnA = 
A) Stock A's after-tax return is higher by 1.27% 
B) Stock B's after-tax return is higher by 0.73% 
C) Stock A's after-tax return is higher by 0.27% 
D) Stock B's after-tax return is higher by 0.58% After-tax ReturnA =

Question 11

The record date for a dividend is scheduled between the:

Accepted Answer

A) Declaration date and the with-dividend date 
B) With-dividend date and ex-dividend date 
C) Ex-dividend date and the payment date 
D) Declaration date and ex-dividend date 
A) Declaration date and the with-dividend date 
B) With-dividend date and ex-dividend date 
C) Ex-dividend date and the payment date 
D) Declaration date and ex-dividend date

Question 12

Miller and Modigliani proclaim that, under certain ideal conditions, dividend policy is irrelevant.
What is it that they are specifically proclaiming to be irrelevant? Explain with the following example.Assume that a firm has $100,000 in assets at market value, no debt, and 100 shares outstanding.Further, $10,000 of the assets is in cash, which represents the recent net income of the firm.Now the firm can choose whether to pay out, say, a 50% dividend, which will necessitate the issuance of $5,000 in new shares, or to pay no dividend and plow back all $10,000 of earnings into a project with an attractive NPV.

Accepted Answer

The purpose of the "homemade" dividend e

Question 13

The effect of a stock repurchase is not equivalent to that of a cash dividend.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is correct for a firm with $400,000 in net earnings, 20,000 shares, and a 30% payout ratio?

Accepted Answer

A) Retained earnings will increase by $120,000 
B) Each share will receive a $1.20 dividend 
C) $120,000 will be spent on new investment 
D) The dividend per share will equal $6.00 
A) Retained earnings will increase by $120,000 
B) Each share will receive a $1.20 dividend 
C) $120,000 will be spent on new investment 
D) The dividend per share will equal $6.00

Question 15

Global Inc.has 240,000 shares outstanding.If the company declares a 4 for 6 reverse stock split, determine the number of shares outstanding afterwards.

Accepted Answer

A) 160,000 
B) 180,000 
C) 200,000 
D) 220,000 
A) 160,000 
B) 180,000 
C) 200,000 
D) 220,000

Question 16

Assuming no market imperfections, which of the following will not be affected by a repurchase of shares?

Accepted Answer

A) Assets of the firm 
B) Equity of the firm 
C) Shares outstanding 
D) Price per share 
A) Assets of the firm 
B) Equity of the firm 
C) Shares outstanding 
D) Price per share

Question 17

An investor owns 300 shares of stock currently selling for $70 per share.What should the investor expect to have after the stock declares a three-for-two split?

Accepted Answer

A) 200 shares selling for $93.10 each 
B) 200 shares selling for $105.00 each 
C) 450 shares selling for $46.67 each 
D) 450 shares selling for $93.10 each Current wealth = 300 x $70 = $21,000 
A) 200 shares selling for $93.10 each 
B) 200 shares selling for $105.00 each 
C) 450 shares selling for $46.67 each 
D) 450 shares selling for $93.10 each Current wealth = 300 x $70 = $21,000

Question 18

Automatic dividend reinvestment plans allow firms to:

Accepted Answer

A) Pay dividends on a more frequent schedule 
B) Reduce their cash outflow to shareholders 
C) Transform regular dividends into stock dividends 
D) Avoid the ex-dividend date reduction in stock price 
A) Pay dividends on a more frequent schedule 
B) Reduce their cash outflow to shareholders 
C) Transform regular dividends into stock dividends 
D) Avoid the ex-dividend date reduction in stock price

Question 19

Jackson Corporation paid a dividend of $1.50 per share.It forecasted a $2.50 per share in earnings and had a stock price of $45.Determine the stock price if Cormex declared a 15% stock dividend.

Accepted Answer

A) $33.88 
B) $36.21 
C) $39.13 
D) $42.28 
A) $33.88 
B) $36.21 
C) $39.13 
D) $42.28

Question 20

Xian Inc.has 7,000,000 shares outstanding.If the company declares a 3 for 2 reverse stock split, determine the number of shares outstanding afterwards.

Accepted Answer

A) 10,050,000 
B) 10,080,000 
C) 10,200,000 
D) 10,220,000 
A) 10,050,000 
B) 10,080,000 
C) 10,200,000 
D) 10,220,000

Exam 18: Long-Term Financial Planning

Which of the following is not a logical justification for dividend preference (versus capital gains) in the real world?

Corporations pay regular cash dividends to their:

A stock split will affect the stock's price while a stock dividend will not.

An investor who currently holds 582 shares because he created a homemade dividend by selling 18 shares has done the equivalent of a:

Which of the following processes would not be expected to have an effect on share price?

A stock is currently priced at $65 per share and will pay a $4 dividend in one year.What must the stock sell for in one year to meet investors' expectations of a 15% after-tax yield if dividends are taxed at 28%? Ignore capital gains taxes due to investor timing.

Which of the following is not found in John Lintner's "stylized facts" of corporate dividend policies?

With respect to the proposition that dividend policy does not matter, in order to raise an additional $5,600 in cash by issuing stock, the stock sold must be worth:

Which of the following is not an example of market imperfections that make dividend policy relevant?

The record date for a dividend is scheduled between the:

The effect of a stock repurchase is not equivalent to that of a cash dividend.

Which of the following is correct for a firm with $400,000 in net earnings, 20,000 shares, and a 30% payout ratio?

Global Inc.has 240,000 shares outstanding.If the company declares a 4 for 6 reverse stock split, determine the number of shares outstanding afterwards.

Assuming no market imperfections, which of the following will not be affected by a repurchase of shares?

An investor owns 300 shares of stock currently selling for $70 per share.What should the investor expect to have after the stock declares a three-for-two split?

Automatic dividend reinvestment plans allow firms to:

Jackson Corporation paid a dividend of $1.50 per share.It forecasted a $2.50 per share in earnings and had a stock price of $45.Determine the stock price if Cormex declared a 15% stock dividend.

Xian Inc.has 7,000,000 shares outstanding.If the company declares a 3 for 2 reverse stock split, determine the number of shares outstanding afterwards.

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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