Question 1

The market's reaction to the announcement of a change in the firm's dividend payout is likely 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 2

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 market price per share be after the split?

Accepted Answer

A)  $35 
B)  $40 
C)  $55 
D)  $70 
E)  $140 
A)  $35 
B)  $40 
C)  $55 
D)  $70 
E)  $140

Question 3

Nu Tech,Inc. is a technology firm with good growth prospects. The firm wishes to do something to acknowledge the loyalty of its shareholders but needs all of its available cash to fund its rapid growth. The market price of its stock is currently trading in the middle of its preferred trading range. The firm could consider:

Accepted Answer

A)  issuing a liquidating dividend. 
B)  a stock split. 
C)  a reverse stock split. 
D)  issuing a stock dividend. 
E)  a special cash dividend. 
A)  issuing a liquidating dividend. 
B)  a stock split. 
C)  a reverse stock split. 
D)  issuing a stock dividend. 
E)  a special cash dividend.

Question 4

The ability of shareholders to undo the dividend policy of the firm and create an alternative dividend payment policy via reinvesting dividends or selling shares of stock is called (a):

Accepted Answer

A)  perfect foresight model. 
B)  MM Proposition I. 
C)  capital structure irrelevancy. 
D)  homemade leverage. 
E)  homemade dividends. 
A)  perfect foresight model. 
B)  MM Proposition I. 
C)  capital structure irrelevancy. 
D)  homemade leverage. 
E)  homemade dividends.

Question 5

Which of the following lists events in chronological order from earliest to latest?

Accepted Answer

A)  Date of record, declaration date, ex-dividend date. 
B)  Date of record, ex-dividend date, declaration date. 
C)  Declaration date, date of record, ex-dividend date. 
D)  Declaration date, ex-dividend date, date of record. 
E)  Ex-dividend date, date of record, declaration datE. 
A)  Date of record, declaration date, ex-dividend date. 
B)  Date of record, ex-dividend date, declaration date. 
C)  Declaration date, date of record, ex-dividend date. 
D)  Declaration date, ex-dividend date, date of record. 
E)  Ex-dividend date, date of record, declaration datE.

Question 6

The Rent It Company declared a dividend of $.60 a share on October 20th to holders of record on Monday,November 1st. The dividend is payable on December 1st. You purchased 100 shares of Rent It Company stock on Wednesday,October 27th. How much dividend income will you receive on December 1st from the Rent It Company?

Accepted Answer

A)  $0 
B)  $1.50 
C)  $6.00 
D)  $15.00 
E)  $60.00 
A)  $0 
B)  $1.50 
C)  $6.00 
D)  $15.00 
E)  $60.00

Question 7

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 market value per share be after the split?

Accepted Answer

A)  $1.00 
B)  $5.00 
C)  $10.00 
D)  $25.00 
E)  $50.00 
A)  $1.00 
B)  $5.00 
C)  $10.00 
D)  $25.00 
E)  $50.00

Question 8

Which of the following may tend to keep dividends low?
I. A state law restricting dividends in excess of retained earnings
II. A term contained in bond indenture agreements
III. The desire to maintain constant dividends over time
IV. Flotation costs

Accepted Answer

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

Question 9

In a reverse stock split:

Accepted Answer

A)  the number of shares outstanding increases and owners' equity decreases. 
B)  the firm buys back existing shares of stock on the open market. 
C)  the firm sells new shares of stock on the open market. 
D)  the number of shares outstanding decreases but owners' equity is unchanged. 
E)  shareholders make a cash payment to the firm. 
A)  the number of shares outstanding increases and owners' equity decreases. 
B)  the firm buys back existing shares of stock on the open market. 
C)  the firm sells new shares of stock on the open market. 
D)  the number of shares outstanding decreases but owners' equity is unchanged. 
E)  shareholders make a cash payment to the firm.

Question 10

The last date on which you can purchase shares of stock and still receive the dividend is the date _____ business day(s) prior to the date of record.

Accepted Answer

A)  zero 
B)  one 
C)  three 
D)  five 
E)  seven 
A)  zero 
B)  one 
C)  three 
D)  five 
E)  seven

Question 11

Which one of the following is an argument in favor of a low dividend policy?

Accepted Answer

A)  The tax on capital gains is deferred until the gain is realized. 
B)  Few, if any, positive net present value projects are available to the firm. 
C)  A preponderance of stockholders have minimal taxable income. 
D)  A majority of stockholders have other investment opportunities that offer higher rewards with similar risk characteristics. 
E)  Corporate tax rates exceed personal tax rates. 
A)  The tax on capital gains is deferred until the gain is realized. 
B)  Few, if any, positive net present value projects are available to the firm. 
C)  A preponderance of stockholders have minimal taxable income. 
D)  A majority of stockholders have other investment opportunities that offer higher rewards with similar risk characteristics. 
E)  Corporate tax rates exceed personal tax rates.

Question 12

The Tinslow Co. has 125,000 shares of stock outstanding at a market price of $93 a share. The company has just announced a 5-for-3 stock split. How many shares of stock will be outstanding after the split?

Accepted Answer

A)  62,500 shares 
B)  75,000 shares 
C)  83,333 shares 
D)  175,000 shares 
E)  208,333 shares 
A)  62,500 shares 
B)  75,000 shares 
C)  83,333 shares 
D)  175,000 shares 
E)  208,333 shares

Question 13

Characteristics of a sensible dividend policy include:

Accepted Answer

A)  over time pay out all free cash flows 
B)  set the current regular dividend consistent with a long-run target payout ratio 
C)  use repurchases to distribute transitory cash flow increases 
D)  over time pay out all free cash flows and set the current regular dividend consistent with a long-run target payout ratio 
E)  All of these 
A)  over time pay out all free cash flows 
B)  set the current regular dividend consistent with a long-run target payout ratio 
C)  use repurchases to distribute transitory cash flow increases 
D)  over time pay out all free cash flows and set the current regular dividend consistent with a long-run target payout ratio 
E)  All of these

Question 14

You purchased 200 shares of ABC stock on July 15th. On July 20th,you purchased another 100 shares and then on July 22st you purchased your final 200 shares of ABC stock. The company declared a dividend of $1.10 a share on July 5th to holders of record on Friday,July 23rd. The dividend is payable on July 31st. How much dividend income will you receive on July 31st from ABC?

Accepted Answer

A)  $0 
B)  $220 
C)  $330 
D)  $440 
E)  $550 
A)  $0 
B)  $220 
C)  $330 
D)  $440 
E)  $550

Question 15

A stock split:

Accepted Answer

A)  increases the total value of the common stock account. 
B)  decreases the value of the retained earnings account. 
C)  does not affect the total value of any of the equity accounts. 
D)  increases the value of the capital in excess of par account. 
E)  decreases the total owners' equity on the balance sheet. 
A)  increases the total value of the common stock account. 
B)  decreases the value of the retained earnings account. 
C)  does not affect the total value of any of the equity accounts. 
D)  increases the value of the capital in excess of par account. 
E)  decreases the total owners' equity on the balance sheet.

Question 16

A reverse split is when:

Accepted Answer

A)  the stock price gets too high for investors to purchase in round lots. 
B)  the stock becomes too liquid and highly marketable. 
C)  the stock price moves into the popular trading range. 
D)  several old shares, such as 4, are replaced by 1 new share. 
E)  None of these. 
A)  the stock price gets too high for investors to purchase in round lots. 
B)  the stock becomes too liquid and highly marketable. 
C)  the stock price moves into the popular trading range. 
D)  several old shares, such as 4, are replaced by 1 new share. 
E)  None of these.

Question 17

The Cameron Co. is paying a $0.75 per share dividend today. There are 250,000 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 $250,000. 
B)  retained earnings will decrease by $187,500. 
C)  common stock account will decrease by $187,500. 
D)  common stock account will decrease by $250,000. 
E)  capital in excess of par value account will decrease by $75,000. 
A)  retained earnings will decrease by $250,000. 
B)  retained earnings will decrease by $187,500. 
C)  common stock account will decrease by $187,500. 
D)  common stock account will decrease by $250,000. 
E)  capital in excess of par value account will decrease by $75,000.

Question 18

Wydex,Inc. stock is currently trading at $82 a share. The firm feels that its primary clientele can afford to spend between $2,000 and $2,500 to purchase a round lot of 100 shares. The firm should consider a:

Accepted Answer

A)  reverse stock split. 
B)  liquidating dividend. 
C)  stock dividend. 
D)  stock split. 
E)  special dividend. 
A)  reverse stock split. 
B)  liquidating dividend. 
C)  stock dividend. 
D)  stock split. 
E)  special dividend.

Question 19

On May 18th,you purchased 1,000 shares of BuyLo stock. On June 5th,you sold 200 shares of this stock for $21 a share. You sold an additional 400 shares on July 8th at a price of $22.50 a share. The company declared a $.50 per share dividend on June 25th to holders of record as of Thursday,July 10th. This dividend is payable on July 31st. How much dividend income will you receive on July 31st as a result of your ownership of BuyLo stock?

Accepted Answer

A)  $100 
B)  $200 
C)  $300 
D)  $400 
E)  $500 
A)  $100 
B)  $200 
C)  $300 
D)  $400 
E)  $500

Question 20

The common stock of Margot,Inc. is selling for $56 a share. The par value per share is $1. Currently,the firm has a total market value of $89,600. How many shares of stock will be outstanding if the firm does a 2-for-1 stock split?

Accepted Answer

A)  800 shares 
B)  1,200 shares 
C)  1,600 shares 
D)  3,200 shares 
E)  4,800 shares 
A)  800 shares 
B)  1,200 shares 
C)  1,600 shares 
D)  3,200 shares 
E)  4,800 shares

Exam 19: Dividends and Other Payouts

The market's reaction to the announcement of a change in the firm's dividend payout is likely the:

The ability of shareholders to undo the dividend policy of the firm and create an alternative dividend payment policy via reinvesting dividends or selling shares of stock is called (a):

Which of the following lists events in chronological order from earliest to latest?

Which of the following may tend to keep dividends low? I. A state law restricting dividends in excess of retained earnings II. A term contained in bond indenture agreements III. The desire to maintain constant dividends over time IV. Flotation costs

In a reverse stock split:

The last date on which you can purchase shares of stock and still receive the dividend is the date _____ business day(s) prior to the date of record.

Which one of the following is an argument in favor of a low dividend policy?

The Tinslow Co. has 125,000 shares of stock outstanding at a market price of $93 a share. The company has just announced a 5-for-3 stock split. How many shares of stock will be outstanding after the split?

Characteristics of a sensible dividend policy include:

A stock split:

A reverse split is when:

The Cameron Co. is paying a $0.75 per share dividend today. There are 250,000 shares outstanding with a par value of $1.00 per share. As a result of this dividend,the:

Wydex,Inc. stock is currently trading at $82 a share. The firm feels that its primary clientele can afford to spend between $2,000 and $2,500 to purchase a round lot of 100 shares. The firm should consider a:

The common stock of Margot,Inc. is selling for $56 a share. The par value per share is $1. Currently,the firm has a total market value of $89,600. How many shares of stock will be outstanding if the firm does a 2-for-1 stock split?

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

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