Question 1

Compare and contrast share repurchases with dividend payouts.

Accepted Answer

Share repurchases are similar to an extr

Question 2

Which 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

Of the following,who has tax benefits for preferring dividends?

Accepted Answer

A)  Individual investors 
B)  Corporations 
C)  Financial institutions 
D)  Banks 
A)  Individual investors 
B)  Corporations 
C)  Financial institutions 
D)  Banks

Question 4

Research has shown all of the following to be true of the way corporations determine dividends except:

Accepted Answer

A)  Firms have short-run target payout ratios. 
B)  Firms have long-run target payout ratios. 
C)  The focus is more on dividend changes rather than absolute dividends. 
D)  Managers try to avoid dividend changes that may need to be reversed. 
A)  Firms have short-run target payout ratios. 
B)  Firms have long-run target payout ratios. 
C)  The focus is more on dividend changes rather than absolute dividends. 
D)  Managers try to avoid dividend changes that may need to be reversed.

Question 5

When a public firm declares a stock repurchase:

Accepted Answer

A)  the number of outstanding shares falls along with the price. 
B)  the number of outstanding shares falls and the price may rise or remain unchanged. 
C)  an investor will receive cash in exchange for a smaller percentage of ownership. 
D)  demand drives the stock price up. 
A)  the number of outstanding shares falls along with the price. 
B)  the number of outstanding shares falls and the price may rise or remain unchanged. 
C)  an investor will receive cash in exchange for a smaller percentage of ownership. 
D)  demand drives the stock price up.

Question 6

Compare the after-tax returns for a corporation that invests in preferred stock with a 12% dividend versus a common stock with no dividend but a 16% capital gain.The corporation's tax rate is 35%.The:

Accepted Answer

A)  common stock returns 2.60% more than preferred. 
B)  preferred stock returns 0.34% more than common. 
C)  common stock returns 2.32% more than preferred. 
D)  returns are equal on an after-tax basis. 
A)  common stock returns 2.60% more than preferred. 
B)  preferred stock returns 0.34% more than common. 
C)  common stock returns 2.32% more than preferred. 
D)  returns are equal on an after-tax basis.

Question 7

Corporations pay regular cash dividends to their:

Accepted Answer

A)  common shareholders. 
B)  preferred bondholders. 
C)  fixed-rate bondholders. 
D)  convertible bondholders. 
A)  common shareholders. 
B)  preferred bondholders. 
C)  fixed-rate bondholders. 
D)  convertible bondholders.

Question 8

A stock split will affect the stock's price while a stock dividend will not.

Accepted Answer

A) True 
 B)False

Question 9

Dividend policy may be defined as the trade-off between retaining earnings on the one hand and paying out cash and issuing shares on the other.

Accepted Answer

A) True 
 B)False

Question 10

A dividend is declared on January 1,has an ex-dividend date of January 20,and a record date of January 26.Which of the following shareholders will not receive the dividend?

Accepted Answer

A)  A shareholder who purchases on December 31. 
B)  A shareholder who purchases on January 10. 
C)  A shareholder who purchases on January 19. 
D)  A shareholder who purchases on January 24. 
A)  A shareholder who purchases on December 31. 
B)  A shareholder who purchases on January 10. 
C)  A shareholder who purchases on January 19. 
D)  A shareholder who purchases on January 24.

Question 11

Which of the following statements is correct for stock purchased on the last day to trade "cum dividend"?

Accepted Answer

A)  A dividend will be declared on the next trading day. 
B)  A dividend will be paid on the next trading day. 
C)  The stock price should decline on the next trading day. 
D)  The stock price should have declined on the previous trading day. 
A)  A dividend will be declared on the next trading day. 
B)  A dividend will be paid on the next trading day. 
C)  The stock price should decline on the next trading day. 
D)  The stock price should have declined on the previous trading day.

Question 12

Those economists feeling that low dividend payouts will increase share price focus on:

Accepted Answer

A)  the difficulty in predicting earnings. 
B)  superior reinvestment opportunities. 
C)  tax differentials between dividends and capital gains. 
D)  the cost of borrowing to maintain high payouts. 
A)  the difficulty in predicting earnings. 
B)  superior reinvestment opportunities. 
C)  tax differentials between dividends and capital gains. 
D)  the cost of borrowing to maintain high payouts.

Question 13

Which of the following is the order in which key dividend dates occur?

Accepted Answer

A)  Declaration, record, ex-dividend, payment 
B)  Declaration, ex-dividend, record, payment 
C)  Record, declaration, payment, ex-dividend 
D)  Ex-dividend, record, declaration, payment 
A)  Declaration, record, ex-dividend, payment 
B)  Declaration, ex-dividend, record, payment 
C)  Record, declaration, payment, ex-dividend 
D)  Ex-dividend, record, declaration, payment

Question 14

Investors may prefer lower dividends over higher dividends because:

Accepted Answer

A)  the low dividends are more predictable. 
B)  capital gains may be taxed less heavily than dividends. 
C)  of the "bird in the hand" logic. 
D)  low dividends indicate heavy investment for the future. 
A)  the low dividends are more predictable. 
B)  capital gains may be taxed less heavily than dividends. 
C)  of the "bird in the hand" logic. 
D)  low dividends indicate heavy investment for the future.

Question 15

Assuming no market imperfections,which of the following will not be affected by a repurchase of shares?

Accepted Answer

A)  Assets of the firm 
B)  Equity of the firm 
C)  Shares outstanding 
D)  Price per share 
A)  Assets of the firm 
B)  Equity of the firm 
C)  Shares outstanding 
D)  Price per share

Question 16

Miller and Modigliani proclaim that,under certain ideal conditions,dividend policy is irrelevant.What is it that they are specifically proclaiming to be irrelevant? Explain with the following example.Assume that a firm has $100,000 in assets at market value,no debt,and 100 shares outstanding.Further,$10,000 of the assets are in cash which represents the recent net income of the firm.Now the firm can choose whether to pay out,say,a 50% dividend which will necessitate the issuance of $5,000 in new shares,or to pay no dividend and plow back all $10,000 of earnings into a project with an attractive NPV.

Accepted Answer

MM are proclaiming that,regardless of di

Question 17

MM's proposition concerning dividends contends that shareholders will:

Accepted Answer

A)  offer higher prices for higher dividend payouts. 
B)  not offer higher prices for higher dividend payouts. 
C)  offer higher prices for lower dividend payouts. 
D)  purchase only stocks that have high dividend payouts. 
A)  offer higher prices for higher dividend payouts. 
B)  not offer higher prices for higher dividend payouts. 
C)  offer higher prices for lower dividend payouts. 
D)  purchase only stocks that have high dividend payouts.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Which of the following would you expect to have more impact on a dividend-based-stock-valuation model?

Accepted Answer

A)  Special dividend 
B)  Regular dividend 
C)  Extra dividend 
D)  Stock dividend 
A)  Special dividend 
B)  Regular dividend 
C)  Extra dividend 
D)  Stock dividend

Question 20

How might differences in the tax treatment of dividends and capital gains affect dividend policy?

Accepted Answer

Instead of paying dividends,the company

Exam 17: Payout Policy

Compare and contrast share repurchases with dividend payouts.

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

Of the following,who has tax benefits for preferring dividends?

Research has shown all of the following to be true of the way corporations determine dividends except:

When a public firm declares a stock repurchase:

Compare the after-tax returns for a corporation that invests in preferred stock with a 12% dividend versus a common stock with no dividend but a 16% capital gain.The corporation's tax rate is 35%.The:

Corporations pay regular cash dividends to their:

A stock split will affect the stock's price while a stock dividend will not.

Dividend policy may be defined as the trade-off between retaining earnings on the one hand and paying out cash and issuing shares on the other.

A dividend is declared on January 1,has an ex-dividend date of January 20,and a record date of January 26.Which of the following shareholders will not receive the dividend?

Which of the following statements is correct for stock purchased on the last day to trade "cum dividend"?

Those economists feeling that low dividend payouts will increase share price focus on:

Which of the following is the order in which key dividend dates occur?

Investors may prefer lower dividends over higher dividends because:

Assuming no market imperfections,which of the following will not be affected by a repurchase of shares?

MM's proposition concerning dividends contends that shareholders will:

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

Which of the following would you expect to have more impact on a dividend-based-stock-valuation model?

How might differences in the tax treatment of dividends and capital gains affect dividend policy?

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

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Risk Management

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