Question 1

The fact that flotation costs can be significant is justification for:

Accepted Answer

A)  a firm to issue larger dividends than its closest competitors. 
B)  a firm to maintain a constant dividend policy even if it frequently has to issue new shares of stock to do so. 
C)  maintaining a constant dividend policy even when profits decline significantly. 
D)  maintaining a high dividend policy. 
E)  maintaining a low dividend policy and rarely issuing extra dividends. 
A)  a firm to issue larger dividends than its closest competitors. 
B)  a firm to maintain a constant dividend policy even if it frequently has to issue new shares of stock to do so. 
C)  maintaining a constant dividend policy even when profits decline significantly. 
D)  maintaining a high dividend policy. 
E)  maintaining a low dividend policy and rarely issuing extra dividends.

Question 2

On the date of record the stock price drop is:

Accepted Answer

A)  a full adjustment for the dividend payment. 
B)  a partial adjustment for the dividend payment because of the tax effect. 
C)  zero because it happens on the ex-dividend date. 
D)  zero because it happens on the payment date. 
E)  None of these. 
A)  a full adjustment for the dividend payment. 
B)  a partial adjustment for the dividend payment because of the tax effect. 
C)  zero because it happens on the ex-dividend date. 
D)  zero because it happens on the payment date. 
E)  None of these.

Question 3

You own 200 shares of Loner,Inc. stock. The company has stated that it plans on issuing a dividend of $.20 a share one year from today and then issuing a final liquidating dividend of $1.60 a share two years from today. Your required rate of return is 11%. Ignoring taxes,what is the value of one share of this stock today?

Accepted Answer

A)  $1.48 
B)  $1.60 
C)  $2.20 
D)  $2.52 
E)  $2.80 
A)  $1.48 
B)  $1.60 
C)  $2.20 
D)  $2.52 
E)  $2.80

Question 4

The date by which a stockholder must be registered on the firm's roll as having share ownership in order to receive a declared dividend is called the:

Accepted Answer

A)  ex-rights date. 
B)  ex-dividend date. 
C)  date of record. 
D)  date of payment. 
E)  declaration datE. 
A)  ex-rights date. 
B)  ex-dividend date. 
C)  date of record. 
D)  date of payment. 
E)  declaration datE.

Question 5

A one-for-four reverse stock split will:

Accepted Answer

A)  increase the par value by 25%. 
B)  increase the number of shares outstanding by 400%. 
C)  increase the market value but not affect the par value per share. 
D)  increase a $1 par value to $4. 
E)  increase a $1 par value by $4. 
A)  increase the par value by 25%. 
B)  increase the number of shares outstanding by 400%. 
C)  increase the market value but not affect the par value per share. 
D)  increase a $1 par value to $4. 
E)  increase a $1 par value by $4.

Question 6

An increase in a firm's number of shares outstanding without any change in owners' equity is called a:

Accepted Answer

A)  special dividend. 
B)  stock split. 
C)  share repurchase. 
D)  tender offer. 
E)  liquidating dividend. 
A)  special dividend. 
B)  stock split. 
C)  share repurchase. 
D)  tender offer. 
E)  liquidating dividend.

Question 7

Stock splits are often used to:

Accepted Answer

A)  adjust the market price of a stock such that it falls within a preferred trading range. 
B)  decrease the excess cash held by a firm. 
C)  increase both the number of shares outstanding and the market price per share simultaneously. 
D)  increase the total equity of a firm. 
E)  adjust the debt-equity ratio such that it falls within a preferred rangE. 
A)  adjust the market price of a stock such that it falls within a preferred trading range. 
B)  decrease the excess cash held by a firm. 
C)  increase both the number of shares outstanding and the market price per share simultaneously. 
D)  increase the total equity of a firm. 
E)  adjust the debt-equity ratio such that it falls within a preferred rangE.

Question 8

Samuel's has 7,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $12 per share. The balance sheet shows $7,000 in the common stock account,$58,000 in the capital in excess of par account and $32,500 in the retained earnings account. The firm just announced a 50% (large) stock dividend. What is the value of the retained earnings account after the dividend?

Accepted Answer

A)  $29,000 
B)  $30,500 
C)  $32,500 
D)  $34,500 
E)  $36,000 
A)  $29,000 
B)  $30,500 
C)  $32,500 
D)  $34,500 
E)  $36,000

Question 9

An investor is more likely to prefer a high dividend payout if a firm:

Accepted Answer

A)  has high flotation costs. 
B)  has few, if any, positive net present value projects. 
C)  has lower tax rates than the investor. 
D)  has a stock price that is increasing rapidly. 
E)  offers high capital gains which are taxed at a favorable ratE. 
A)  has high flotation costs. 
B)  has few, if any, positive net present value projects. 
C)  has lower tax rates than the investor. 
D)  has a stock price that is increasing rapidly. 
E)  offers high capital gains which are taxed at a favorable ratE.

Question 10

Of the following factors,which one is considered to be the primary factor affecting a firm's dividend decision?

Accepted Answer

A)  Personal taxes of company stockholders 
B)  Consistent dividend policy 
C)  Attracting retail investors 
D)  Attracting institutional investors 
E)  Sustainable changes in earnings 
A)  Personal taxes of company stockholders 
B)  Consistent dividend policy 
C)  Attracting retail investors 
D)  Attracting institutional investors 
E)  Sustainable changes in earnings

Question 11

If you ignore taxes and transaction costs,a stock repurchase will: I. reduce the total assets of a firm.
II) increase the earnings per share.
III) reduce the PE ratio more than an equivalent stock dividend.
IV) reduce the total equity of a firm.

Accepted Answer

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

Question 12

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 market price per share be after the split?

Accepted Answer

A)  $18 
B)  $24 
C)  $42 
D)  $48 
E)  $54 
A)  $18 
B)  $24 
C)  $42 
D)  $48 
E)  $54

Question 13

Bob's Auto Group has 25,000 shares of stock outstanding at a market price of $4.50 a share. What will the market price per share be if the company does a 1-for-5 reverse stock split?

Accepted Answer

A)  $18.00 
B)  $20.00 
C)  $22.50 
D)  $27.00 
E)  $29.50 
A)  $18.00 
B)  $20.00 
C)  $22.50 
D)  $27.00 
E)  $29.50

Question 14

You owned 200 shares last year and received a stock dividend of 5% at the end of last year. The number of shares you now have is _____ and your wealth has increased by ______%.

Accepted Answer

A)  10; 5 
B)  210; 5 
C)  210; 0 
D)  50,000; 5 
E)  50,000; 0 
A)  10; 5 
B)  210; 5 
C)  210; 0 
D)  50,000; 5 
E)  50,000; 0

Question 15

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 common stock account balance be after the split?

Accepted Answer

A)  $3,000 
B)  $4,500 
C)  $6,000 
D)  $9,000 
E)  $12,000 
A)  $3,000 
B)  $4,500 
C)  $6,000 
D)  $9,000 
E)  $12,000

Question 16

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 value of the common stock account be after the split?

Accepted Answer

A)  $10,000 
B)  $12,500 
C)  $15,000 
D)  $18,500 
E)  $22,500 
A)  $10,000 
B)  $12,500 
C)  $15,000 
D)  $18,500 
E)  $22,500

Question 17

A firm has a market value equal to its book value. Currently,the firm has excess cash of $600 and other assets of $5,400. Equity is worth $6,000. The firm has 500 shares of stock outstanding and net income of $900. What will the new earnings per share be if the firm uses its excess cash to complete a stock repurchase?

Accepted Answer

A)  $1.20 
B)  $1.50 
C)  $1.80 
D)  $2.00 
E)  $2.40 
A)  $1.20 
B)  $1.50 
C)  $1.80 
D)  $2.00 
E)  $2.40

Question 18

A firm announces that it is willing to purchase a number of shares back at various prices and shareholders have the option to indicate how many shares they are willing to sell at various prices. This process is called a:

Accepted Answer

A)  dividend creation model. 
B)  secondary market transaction. 
C)  free market sale. 
D)  Dutch auction. 
E)  None of these. 
A)  dividend creation model. 
B)  secondary market transaction. 
C)  free market sale. 
D)  Dutch auction. 
E)  None of these.

Question 19

The observed empirical fact that stocks attract particular investors based on the firm's dividend policy and the resulting tax impact on investors is called the:

Accepted Answer

A)  information content effect. 
B)  clientele effect. 
C)  efficient markets hypothesis. 
D)  MM Proposition I. 
E)  MM Proposition II. 
A)  information content effect. 
B)  clientele effect. 
C)  efficient markets hypothesis. 
D)  MM Proposition I. 
E)  MM Proposition II.

Question 20

A firm has a market value equal to its book value. Currently,the firm has excess cash of $400 and other assets of $7,600. Equity is worth $8,000. The firm has 200 shares of stock outstanding and net income of $900. The firm has decided to pay out all of its excess cash as a cash dividend. What will the earnings per share be after the dividend is paid?

Accepted Answer

A)  $0.25 
B)  $0.45 
C)  $2.50 
D)  $3.80 
E)  $4.50 
A)  $0.25 
B)  $0.45 
C)  $2.50 
D)  $3.80 
E)  $4.50

Exam 19: Dividends and Other Payouts

The fact that flotation costs can be significant is justification for:

On the date of record the stock price drop is:

The date by which a stockholder must be registered on the firm's roll as having share ownership in order to receive a declared dividend is called the:

A one-for-four reverse stock split will:

An increase in a firm's number of shares outstanding without any change in owners' equity is called a:

Stock splits are often used to:

An investor is more likely to prefer a high dividend payout if a firm:

Of the following factors,which one is considered to be the primary factor affecting a firm's dividend decision?

If you ignore taxes and transaction costs,a stock repurchase will: I. reduce the total assets of a firm. II) increase the earnings per share. III) reduce the PE ratio more than an equivalent stock dividend. IV) reduce the total equity of a firm.

Bob's Auto Group has 25,000 shares of stock outstanding at a market price of $4.50 a share. What will the market price per share be if the company does a 1-for-5 reverse stock split?

You owned 200 shares last year and received a stock dividend of 5% at the end of last year. The number of shares you now have is _____ and your wealth has increased by ______%.

A firm announces that it is willing to purchase a number of shares back at various prices and shareholders have the option to indicate how many shares they are willing to sell at various prices. This process is called a:

The observed empirical fact that stocks attract particular investors based on the firm's dividend policy and the resulting tax impact on investors is called the:

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

You owned 200 shares last year and received a stock dividend of 5% at the end of last year. The number of shares you now have is _ and your wealth has increased by __%.