Question 1

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 
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 C

Question 2

Why may a large increase in earnings not translate into a large increase in dividends?

Accepted Answer

A)  The earnings will be taxed. 
B)  Some investors may prefer capital gains. 
C)  Managers wish to assess the earning's persistence. 
D)  The earnings may already be a part of retained earnings. 
A)  The earnings will be taxed. 
B)  Some investors may prefer capital gains. 
C)  Managers wish to assess the earning's persistence. 
D)  The earnings may already be a part of retained earnings. C

Question 3

A two-for-one stock split will result in:

Accepted Answer

A)  the firm acquiring new assets. 
B)  a decrease in the stock price, but an increase in shareholder wealth. 
C)  an increase in the stock price, and an increase in shareholder wealth. 
D)  a decrease in the stock price and no change to shareholder wealth. 
A)  the firm acquiring new assets. 
B)  a decrease in the stock price, but an increase in shareholder wealth. 
C)  an increase in the stock price, and an increase in shareholder wealth. 
D)  a decrease in the stock price and no change to shareholder wealth. D

Question 4

Capital gains may be preferred by investors over dividends even if their tax rates are equal because:

Accepted Answer

A)  taxes on dividends are withheld from paychecks. 
B)  taxes on capital gains are paid annually. 
C)  taxes on capital gains can be timed. 
D)  after-tax dividends are less certain than capital gains. 
A)  taxes on dividends are withheld from paychecks. 
B)  taxes on capital gains are paid annually. 
C)  taxes on capital gains can be timed. 
D)  after-tax dividends are less certain than capital gains.

Question 5

A policy of dividend "smoothing" refers to:

Accepted Answer

A)  maintaining a constant dividend payout ratio. 
B)  keeping the regular dividend at the same level indefinitely. 
C)  maintaining a steady progression of dividend increases over time. 
D)  alternating cash dividends with stock dividends. 
A)  maintaining a constant dividend payout ratio. 
B)  keeping the regular dividend at the same level indefinitely. 
C)  maintaining a steady progression of dividend increases over time. 
D)  alternating cash dividends with stock dividends.

Question 6

Conservative economists feel that high dividend payouts will increase share price because:

Accepted Answer

A)  capital gains are less certain than dividends. 
B)  dividends signal higher future retained earnings. 
C)  stocks are priced using dividend discount models. 
D)  higher dividend payouts translate into higher investment returns. 
A)  capital gains are less certain than dividends. 
B)  dividends signal higher future retained earnings. 
C)  stocks are priced using dividend discount models. 
D)  higher dividend payouts translate into higher investment returns.

Question 7

The date on which actual dividend checks are mailed to shareholders is the:

Accepted Answer

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

Question 8

Which of the following is not a logical justification for dividend preference (vs.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 9

The stock repurchase champion is ExxonMobil,which has repurchased more than $125 billion of its shares since 2002.

Accepted Answer

A) True 
 B)False

Question 10

With a stock repurchase:

Accepted Answer

A)  no cash flow is extended from the company. 
B)  the company obtains some of its stock, and the price may rise. 
C)  shareholders' ownership in the company will decrease. 
D)  the equity of the firm will increase. 
A)  no cash flow is extended from the company. 
B)  the company obtains some of its stock, and the price may rise. 
C)  shareholders' ownership in the company will decrease. 
D)  the equity of the firm will increase.

Question 11

The manager of XYZ Corp.feels that a dividend increase will increase stock price because many investors value stock with a dividend-discount model.Why might MM disagree with this assertion?

Accepted Answer

A)  The increased dividend makes the firm much riskier. 
B)  Future dividend growth may slow due to lower retained earnings. 
C)  Investors prefer capital gains over dividends. 
D)  Dividend increases will increase the book value but not the market value of the firm. 
A)  The increased dividend makes the firm much riskier. 
B)  Future dividend growth may slow due to lower retained earnings. 
C)  Investors prefer capital gains over dividends. 
D)  Dividend increases will increase the book value but not the market value of the firm.

Question 12

How are repurchases used to distribute cash to shareholders?

Accepted Answer

Companies also pay out money to sharehol

Question 13

Which of the following statements regarding "taxation of dividends and capital gains under current tax law" is incorrect (assuming that the marginal tax rate for a large corporation is 35%)?

Accepted Answer

A)  For-profit corporations have a tax reason to prefer dividends. 
B)  Corporations pay corporate income tax on only 30% of any dividends received. 
C)  The effective tax rate on dividends received by large corporations is 35% of the marginal corporate tax rate. 
D)  Corporations have to pay a 35% tax on the full amount of any realized capital gain. 
A)  For-profit corporations have a tax reason to prefer dividends. 
B)  Corporations pay corporate income tax on only 30% of any dividends received. 
C)  The effective tax rate on dividends received by large corporations is 35% of the marginal corporate tax rate. 
D)  Corporations have to pay a 35% tax on the full amount of any realized capital gain.

Question 14

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 15

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 16

An assumption of the MM dividend irrelevance proposition is:

Accepted Answer

A)  investors are willing to pay higher prices for shares with higher payouts. 
B)  capital gains are offset by receiving no dividend. 
C)  extra cash dividends are offset by a capital gain. 
D)  extra cash dividends are offset by a capital loss. 
A)  investors are willing to pay higher prices for shares with higher payouts. 
B)  capital gains are offset by receiving no dividend. 
C)  extra cash dividends are offset by a capital gain. 
D)  extra cash dividends are offset by a capital loss.

Question 17

A corporation's dividend payout ratio is the percentage of _____ paid out as dividends.

Accepted Answer

A)  cash 
B)  earnings 
C)  earnings before interest and taxes 
D)  retained earnings 
A)  cash 
B)  earnings 
C)  earnings before interest and taxes 
D)  retained earnings

Question 18

An investor who owns stock on the company's __________ date will receive the dividends declared.

Accepted Answer

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

Question 19

Managers have been characterized as reluctant to increase dividends if:

Accepted Answer

A)  dividends were increased in the preceding year. 
B)  earnings have permanently increased. 
C)  the dividend increase cannot be sustained. 
D)  the dividend payout ratio exceeds 20%. 
A)  dividends were increased in the preceding year. 
B)  earnings have permanently increased. 
C)  the dividend increase cannot be sustained. 
D)  the dividend payout ratio exceeds 20%.

Question 20

Why would dividend policy not affect firm value in an ideal world?

Accepted Answer

If we hold the company's investment poli

Exam 17: Payout Policy

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?

Why may a large increase in earnings not translate into a large increase in dividends?

A two-for-one stock split will result in:

Capital gains may be preferred by investors over dividends even if their tax rates are equal because:

A policy of dividend "smoothing" refers to:

Conservative economists feel that high dividend payouts will increase share price because:

The date on which actual dividend checks are mailed to shareholders is the:

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

The stock repurchase champion is ExxonMobil,which has repurchased more than $125 billion of its shares since 2002.

With a stock repurchase:

The manager of XYZ Corp.feels that a dividend increase will increase stock price because many investors value stock with a dividend-discount model.Why might MM disagree with this assertion?

How are repurchases used to distribute cash to shareholders?

Which of the following statements regarding "taxation of dividends and capital gains under current tax law" is incorrect (assuming that the marginal tax rate for a large corporation is 35%)?

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

The record date for a dividend is scheduled between the:

An assumption of the MM dividend irrelevance proposition is:

A corporation's dividend payout ratio is the percentage of _____ paid out as dividends.

An investor who owns stock on the company's __________ date will receive the dividends declared.

Managers have been characterized as reluctant to increase dividends if:

Why would dividend policy not affect firm value in an ideal world?

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

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters

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