Question 1

How does the information content of a repurchase program differ from that of a dividend increase? Which signal has the more lasting result?

Accepted Answer

When a corporation announces a dividend

Question 2

Which one 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 3

High dividends may be used as __________ of a firm's __________.

Accepted Answer

A)  an indicator; high capital gains 
B)  an indicator; tax liability 
C)  a signal; poor prospects 
D) a signal; good prospects 
A)  an indicator; high capital gains 
B)  an indicator; tax liability 
C)  a signal; poor prospects 
D) a signal; good prospects

Question 4

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

Accepted Answer

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

Question 5

The Beta Corporation has 1,000 shares outstanding and a market value of $90,000. What will be the market value per share after the firm distributes a $5 per share dividend? Ignore taxes and market imperfections.

Accepted Answer

A)  $90 
B)  $85 
C)  $80 
D) $87.50 
A)  $90 
B)  $85 
C)  $80 
D) $87.50

Question 6

Which one of the following is correct for a firm with $400,000 in net earnings, 50,000 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 investments. 
D) The dividend per share will be $2.40. 
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 investments. 
D) The dividend per share will be $2.40.

Question 7

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) less than $5,600. 
A)  more than $5,600. 
B)  $2,800. 
C)  $5,600. 
D) less than $5,600.

Question 8

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 9

If the total assets of a firm are unaffected by a stock dividend, then:

Accepted Answer

A)  the stock should retain the same price per share. 
B)  stock dividends should be preferred by corporations over cash dividends. 
C)  an investor's wealth should not be changed by the dividend. 
D) only bondholders benefit from stock dividends. 
A)  the stock should retain the same price per share. 
B)  stock dividends should be preferred by corporations over cash dividends. 
C)  an investor's wealth should not be changed by the dividend. 
D) only bondholders benefit from stock dividends.

Question 10

What capital gain must a non-dividend-paying stock attain in order for a corporate investor in the 35% tax bracket to be indifferent to a stock paying an 8% dividend but having no capital gain?

Accepted Answer

A)  8.00% 
B)  9.29% 
C)  11.02% 
D) 12.31% 
A)  8.00% 
B)  9.29% 
C)  11.02% 
D) 12.31%

Question 11

A 50% stock dividend is the same as a 2-for-1 stock split.

Accepted Answer

A) True 
 B)False

Question 12

With respect to the dividend-payment process, the price of a share of stock can logically be expected to drop on:

Accepted Answer

A)  the payment date. 
B)  the date of record. 
C)  the ex-dividend date. 
D) the declaration date. 
A)  the payment date. 
B)  the date of record. 
C)  the ex-dividend date. 
D) the declaration date.

Question 13

An investor owns 300 shares of stock currently selling for $70 per share. After a 3-for-2 stock split, the investor will have:

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. 
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.

Question 14

A dividend does not accompany stocks that are purchased on the ex-dividend date.

Accepted Answer

A) True 
 B)False

Question 15

You currently own 200 shares of stock valued at $6 per share. If the firm declares a 1-for-4 reverse stock dividend you will own ____ shares valued at ___ per share.

Accepted Answer

A)  800; $6 
B)  800; $1.50 
C)  50; $6 
D) 50; $24 
A)  800; $6 
B)  800; $1.50 
C)  50; $6 
D) 50; $24

Question 16

A two-for-one stock split is like a 200% stock dividend.

Accepted Answer

A) True 
 B)False

Question 17

The share price declines when a stock repurchase occurs.

Accepted Answer

A) True 
 B)False

Question 18

Which one of the following statements regarding stock dividends and stock splits is true?

Accepted Answer

A)  A two-for-one stock split is equivalent to a 50% stock dividend. 
B)  A three-for-one stock split is equivalent to a 66% stock dividend. 
C)  A three-for-two stock split is equivalent to a 100% stock dividend. 
D) A three-for-two stock split is equivalent to a 50% stock dividend. 
A)  A two-for-one stock split is equivalent to a 50% stock dividend. 
B)  A three-for-one stock split is equivalent to a 66% stock dividend. 
C)  A three-for-two stock split is equivalent to a 100% stock dividend. 
D) A three-for-two stock split is equivalent to a 50% stock dividend.

Exam 17: Payout Policy

How does the information content of a repurchase program differ from that of a dividend increase? Which signal has the more lasting result?

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

High dividends may be used as __________ of a firm's __________.

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

The Beta Corporation has 1,000 shares outstanding and a market value of $90,000. What will be the market value per share after the firm distributes a $5 per share dividend? Ignore taxes and market imperfections.

Which one of the following is correct for a firm with $400,000 in net earnings, 50,000 shares, and a 30% payout ratio?

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:

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

If the total assets of a firm are unaffected by a stock dividend, then:

What capital gain must a non-dividend-paying stock attain in order for a corporate investor in the 35% tax bracket to be indifferent to a stock paying an 8% dividend but having no capital gain?

A 50% stock dividend is the same as a 2-for-1 stock split.

With respect to the dividend-payment process, the price of a share of stock can logically be expected to drop on:

An investor owns 300 shares of stock currently selling for $70 per share. After a 3-for-2 stock split, the investor will have:

A dividend does not accompany stocks that are purchased on the ex-dividend date.

You currently own 200 shares of stock valued at $6 per share. If the firm declares a 1-for-4 reverse stock dividend you will own ____ shares valued at ___ per share.

A two-for-one stock split is like a 200% stock dividend.

The share price declines when a stock repurchase occurs.

Which one of the following statements regarding stock dividends and stock splits is true?

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters

High dividends may be used as of a firm's .

You currently own 200 shares of stock valued at $6 per share. If the firm declares a 1-for-4 reverse stock dividend you will own __ shares valued at _ per share.