Question 1

A small stock dividend is defined as a stock dividend of less than _____%.

Accepted Answer

A)  10 to 15 
B)  15 to 20 
C)  20 to 25 
D)  25 to 30 
E)  30 to 35 
A)  10 to 15 
B)  15 to 20 
C)  20 to 25 
D)  25 to 30 
E)  30 to 35 C

Question 2

Dividends are relevant and dividend policy irrelevant when:

Accepted Answer

A)  cash dividends are always constant and dividend policy is changed as management needs. 
B)  cash dividends are increased for one year while others are held constant, thus causing an increase in stock price, and dividend policy establishes the trade-off between dividends at different dates. 
C)  cash dividends are always constant and dividend policy establishes the trade-off between dividends at different dates. 
D)  cash dividends are increased for one payment while others are held constant and dividend policy is changed as management needs. 
E)  None of these. 
A)  cash dividends are always constant and dividend policy is changed as management needs. 
B)  cash dividends are increased for one year while others are held constant, thus causing an increase in stock price, and dividend policy establishes the trade-off between dividends at different dates. 
C)  cash dividends are always constant and dividend policy establishes the trade-off between dividends at different dates. 
D)  cash dividends are increased for one payment while others are held constant and dividend policy is changed as management needs. 
E)  None of these. B

Question 3

Robinson's has 15,000 shares of stock outstanding with a par value of $1.00 per share and a market price of $36 a share. The balance sheet shows $15,000 in the common stock account,$315,000 in the capital in excess of par account,and $189,000 in the retained earnings account. The firm just announced a 3-for-2 stock split. What will the capital in excess of par account value be after the split?

Accepted Answer

A)  $126,000 
B)  $210,000 
C)  $283,500 
D)  $315,000 
E)  $472,500 
A)  $126,000 
B)  $210,000 
C)  $283,500 
D)  $315,000 
E)  $472,500 D

Question 4

Michael's Boating Supplies has 150,000 shares of stock outstanding with a par value of $1 per share and a market value of $10 a share. The company has retained earnings of $76,500 and capital in excess of par of $340,000. The company just announced a 1-for-5 reverse stock split. What will the par value per share be after the split?

Accepted Answer

A)  $0.20 
B)  $1.00 
C)  $3.00 
D)  $5.00 
E)  $10.00 
A)  $0.20 
B)  $1.00 
C)  $3.00 
D)  $5.00 
E)  $10.00

Question 5

The date before which a new purchaser of stock is entitled to receive a declared dividend,but on or after which she does not receive the dividend,is called the _____ date.

Accepted Answer

A)  ex-rights 
B)  ex-dividend 
C)  record 
D)  payment 
E)  declaration 
A)  ex-rights 
B)  ex-dividend 
C)  record 
D)  payment 
E)  declaration

Question 6

The KatyDid Co. is paying a $1.25 per share dividend today. There are 120,000 shares outstanding with a par value of $1.00 per share. As a result of this dividend,the:

Accepted Answer

A)  retained earnings will decrease by $150,000. 
B)  retained earnings will decrease by $120,000. 
C)  common stock account will decrease by $150,000. 
D)  common stock account will decrease by $120,000. 
E)  capital in excess of par value account will decrease by $120,000. 
A)  retained earnings will decrease by $150,000. 
B)  retained earnings will decrease by $120,000. 
C)  common stock account will decrease by $150,000. 
D)  common stock account will decrease by $120,000. 
E)  capital in excess of par value account will decrease by $120,000.

Question 7

The Retail Outlet has 6,000 shares of stock outstanding with a par value of $1.00 per share. The current market value of the firm is $420,000. The balance sheet shows a capital in excess of par account value of $136,000 and retained earnings of $234,000. The company just announced a 2-for-1 stock split. What will the retained earnings account balance be after the split?

Accepted Answer

A)  $117,000 
B)  $234,000 
C)  $351,000 
D)  $410,000 
E)  $468,000 
A)  $117,000 
B)  $234,000 
C)  $351,000 
D)  $410,000 
E)  $468,000

Question 8

Which of the following tend to increase the appeal of a firm's stock to the average investor?
I. A cessation of dividends by a firm which has a long history of increasing dividends
II. The distribution of a special dividend by a dividend-paying firm
III. A reverse stock split for a low-priced stock
IV. The declaration of a stock dividend by a growth firm

Accepted Answer

A)  I and III only 
B)  II and IV only 
C)  I, II, and IV only 
D)  II, III, and IV only 
E)  I, II, III, and IV 
A)  I and III only 
B)  II and IV only 
C)  I, II, and IV only 
D)  II, III, and IV only 
E)  I, II, III, and IV

Question 9

Financial managers:

Accepted Answer

A)  are reluctant to cut dividends. 
B)  tend to ignore past dividend policies. 
C)  tend to prefer cutting dividends every time quarterly earnings decline. 
D)  prefer cutting dividends over incurring flotation costs. 
E)  place little emphasis on dividend policy consistency. 
A)  are reluctant to cut dividends. 
B)  tend to ignore past dividend policies. 
C)  tend to prefer cutting dividends every time quarterly earnings decline. 
D)  prefer cutting dividends over incurring flotation costs. 
E)  place little emphasis on dividend policy consistency.

Question 10

A reverse stock split is sometimes used as a means of:

Accepted Answer

A)  decreasing the liquidity of a stock. 
B)  decreasing the market value per share of stock. 
C)  increasing the number of stockholders. 
D)  keeping a firm's stock eligible for trading on a stock exchange. 
E)  raising cash from current stockholders. 
A)  decreasing the liquidity of a stock. 
B)  decreasing the market value per share of stock. 
C)  increasing the number of stockholders. 
D)  keeping a firm's stock eligible for trading on a stock exchange. 
E)  raising cash from current stockholders.

Question 11

Edie's Health and Beauty Supply has 125,000 shares of stock outstanding with a par value of $1 per share and a market value of $5 a share. The company has retained earnings of $76,500 and capital in excess of par of $340,000. The company just announced a 1-for-5 reverse stock split. What will the par value per share be after the split?

Accepted Answer

A)  $0.20 
B)  $1.00 
C)  $2.50 
D)  $5.00 
E)  $10.00 
A)  $0.20 
B)  $1.00 
C)  $2.50 
D)  $5.00 
E)  $10.00

Question 12

A payment made by a firm to its owners in the form of new shares of stock is called a _____ dividend.

Accepted Answer

A)  stock 
B)  normal 
C)  special 
D)  extra 
E)  liquidating 
A)  stock 
B)  normal 
C)  special 
D)  extra 
E)  liquidating

Question 13

The dividend-irrelevance proposition of Miller and Modigliani depends on the following relationship between investment policy and dividend policy:

Accepted Answer

A)  The level of investment does not influence or matter to the dividend decision. 
B)  Once dividend policy is set the investment decision can be made as desired. 
C)  The investment policy is set before the dividend decision and not changed by dividend policy. 
D)  Since dividend policy is irrelevant there is no relationship between investment policy and dividend policy. 
E)  Miller and Modigliani were only concerned about capital structurE. 
A)  The level of investment does not influence or matter to the dividend decision. 
B)  Once dividend policy is set the investment decision can be made as desired. 
C)  The investment policy is set before the dividend decision and not changed by dividend policy. 
D)  Since dividend policy is irrelevant there is no relationship between investment policy and dividend policy. 
E)  Miller and Modigliani were only concerned about capital structurE.

Question 14

All else equal,a stock dividend will _____ the number of shares outstanding and _____ the value per share.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  not change; increase 
D)  decrease; increase 
E)  decrease; decrease 
A)  increase; increase 
B)  increase; decrease 
C)  not change; increase 
D)  decrease; increase 
E)  decrease; decrease

Question 15

Edie's Health and Beauty Supply has 125,000 shares of stock outstanding with a par value of $1 per share and a market value of $5 a share. The company has retained earnings of $76,500 and capital in excess of par of $340,000. The company just announced a 1-for-5 reverse stock split. How many shares of stock will be outstanding after the split?

Accepted Answer

A)  25,000 shares 
B)  250,000 shares 
C)  312,500 shares 
D)  500,000 shares 
E)  625,000 shares 
A)  25,000 shares 
B)  250,000 shares 
C)  312,500 shares 
D)  500,000 shares 
E)  625,000 shares

Question 16

A cash payment made by a firm to its owners in the normal course of business is called a:

Accepted Answer

A)  share repurchase. 
B)  liquidating dividend. 
C)  regular cash dividend. 
D)  special dividend. 
E)  extra cash dividend. 
A)  share repurchase. 
B)  liquidating dividend. 
C)  regular cash dividend. 
D)  special dividend. 
E)  extra cash dividend.

Question 17

Homemade dividends are described by Modigliani and Miller to be the:

Accepted Answer

A)  dividend one pays oneself to avoid risky stocks. 
B)  re-arrangement of the firm's dividend stream as management needs. 
C)  re-arrangement of the firm's dividend stream by investors buying or selling their holdings in the stock. 
D)  present value of all dividends to be paid. 
E)  None of these. 
A)  dividend one pays oneself to avoid risky stocks. 
B)  re-arrangement of the firm's dividend stream as management needs. 
C)  re-arrangement of the firm's dividend stream by investors buying or selling their holdings in the stock. 
D)  present value of all dividends to be paid. 
E)  None of these.

Question 18

A _____ is an alternative method to cash dividends which is used to pay out a firm's earnings to shareholders.

Accepted Answer

A)  merger 
B)  acquisition 
C)  payment-in-kind 
D)  stock split 
E)  share repurchase 
A)  merger 
B)  acquisition 
C)  payment-in-kind 
D)  stock split 
E)  share repurchase

Question 19

A firm has a market value equal to its book value. Currently,the firm has excess cash of $800 and other assets of $5,200. Equity is worth $6,000. The firm has 600 shares of stock outstanding and net income of $700. The firm has decided to spend all of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?

Accepted Answer

A)  480 shares 
B)  500 shares 
C)  520 shares 
D)  540 shares 
E)  560 shares 
A)  480 shares 
B)  500 shares 
C)  520 shares 
D)  540 shares 
E)  560 shares

Question 20

Payments made out of a firm's earnings to its owners in the form of cash or stock are called:

Accepted Answer

A)  dividends. 
B)  distributions. 
C)  share repurchases. 
D)  payments-in-kind. 
E)  stock splits. 
A)  dividends. 
B)  distributions. 
C)  share repurchases. 
D)  payments-in-kind. 
E)  stock splits.

Exam 19: Dividends and Other Payouts

A small stock dividend is defined as a stock dividend of less than _____%.

Dividends are relevant and dividend policy irrelevant when:

The date before which a new purchaser of stock is entitled to receive a declared dividend,but on or after which she does not receive the dividend,is called the _____ date.

The KatyDid Co. is paying a $1.25 per share dividend today. There are 120,000 shares outstanding with a par value of $1.00 per share. As a result of this dividend,the:

Financial managers:

A reverse stock split is sometimes used as a means of:

A payment made by a firm to its owners in the form of new shares of stock is called a _____ dividend.

The dividend-irrelevance proposition of Miller and Modigliani depends on the following relationship between investment policy and dividend policy:

All else equal,a stock dividend will _____ the number of shares outstanding and _____ the value per share.

A cash payment made by a firm to its owners in the normal course of business is called a:

Homemade dividends are described by Modigliani and Miller to be the:

A _____ is an alternative method to cash dividends which is used to pay out a firm's earnings to shareholders.

Payments made out of a firm's earnings to its owners in the form of cash or stock are called:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers, Acquisitions, and Divestitures

Financial Distress

International Corporate Finance

Filters

All else equal,a stock dividend will _ the number of shares outstanding and _ the value per share.