Question 1

Investors often take the stock split decision as a signal of management's confidence in the future.

Accepted Answer

A) True 
 B)False

Question 2

ABC Corp.stock is selling for $30 per share when a 10% stock dividend is declared.If you own 100 shares of ABC Corp.then you will receive:

Accepted Answer

A)  $3. 
B)  $3 times 100 shares = $300. 
C)  $300 plus 10 shares of ABC Corp. 
D)  10 shares of ABC Corp. 
A)  $3. 
B)  $3 times 100 shares = $300. 
C)  $300 plus 10 shares of ABC Corp. 
D)  10 shares of ABC Corp.

Question 3

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

Accepted Answer

When a corporation announces a dividend

Question 4

A stock split and/or a stock dividend will result in an:

Accepted Answer

A)  increase in the number of shares outstanding. 
B)  increase in the market value of the firm. 
C)  increase in the total assets of the firm. 
D)  increase in both the number of shares outstanding and the total assets of the firm. 
A)  increase in the number of shares outstanding. 
B)  increase in the market value of the firm. 
C)  increase in the total assets of the firm. 
D)  increase in both the number of shares outstanding and the total assets of the firm.

Question 5

In a three-for-two stock split for a company that previously had 1 million shares outstanding selling at $100 per share and a total market value of $100 million,which of the following is true?

Accepted Answer

A)  The number of outstanding shares will drop to 666,666, and the stock price will increase to $150. 
B)  The number of outstanding shares will increase to 1.5 million, and the stock price will drop to $66.67. 
C)  The number of outstanding shares will increase to 1.5 million, and the stock price will rise to $133.33. 
D)  The market value of the firm will increase. 
A)  The number of outstanding shares will drop to 666,666, and the stock price will increase to $150. 
B)  The number of outstanding shares will increase to 1.5 million, and the stock price will drop to $66.67. 
C)  The number of outstanding shares will increase to 1.5 million, and the stock price will rise to $133.33. 
D)  The market value of the firm will increase.

Question 6

According to the MM dividend-irrelevance proposition,since investors do not need dividends to convert their shares to cash,they will not pay higher prices for firms with higher dividend payouts.

Accepted Answer

A) True 
 B)False

Question 7

The primary purpose of laws prohibiting a firm from paying dividends that include its legal capital is to:

Accepted Answer

A)  reduce investors' tax liability. 
B)  ensure that the balance sheet balances. 
C)  prevent managers from paying out all the firm's assets. 
D)  prevent managers from paying large dividends. 
A)  reduce investors' tax liability. 
B)  ensure that the balance sheet balances. 
C)  prevent managers from paying out all the firm's assets. 
D)  prevent managers from paying large dividends.

Question 8

Suppose two equally risky shares,Div and Cap,offer the same expected return before tax.Div shares pay a generous dividend but offer low expected capital gains.Cap shares pay low dividends but offer high expected capital gains.Which of the two shares would a pension fund prefer? An individual? A corporation? Explain your answers.

Accepted Answer

A pension fund would not care about the

Question 9

What would you expect to happen to the price of a share of stock on the day it goes ex-dividend? The price should:

Accepted Answer

A)  increase by the amount of the dividend. 
B)  decrease by the amount of the dividend. 
C)  decrease by one-half the amount of the dividend. 
D)  remain constant. 
A)  increase by the amount of the dividend. 
B)  decrease by the amount of the dividend. 
C)  decrease by one-half the amount of the dividend. 
D)  remain constant.

Question 10

An investor owns 5,000 shares,which is 1% of a corporation's outstanding stock before a stock repurchase.The investor did not sell any of his stock during the 25,000 share repurchase.Which of the following statements is correct?

Accepted Answer

A)  The investor still owns 1% of the corporation. 
B)  The stock's price is likely to drop by 5%. 
C)  The investor owns more than 1% of the corporation. 
D)  The investor now has 5,250 shares. 
A)  The investor still owns 1% of the corporation. 
B)  The stock's price is likely to drop by 5%. 
C)  The investor owns more than 1% of the corporation. 
D)  The investor now has 5,250 shares.

Question 11

XYZ Corp.has 1,000 shares outstanding and retained earnings of $25,000.Theoretically,what would you expect to happen to the price of their stock,currently selling for $30 per share,if a 25% stock dividend is declared?

Accepted Answer

A)  Price should increase to $44.00 per share. 
B)  Price should increase to $37.50 per share. 
C)  Price should decrease to $24.00 per share. 
D)  Nothing; price should remain at $30.00. 
A)  Price should increase to $44.00 per share. 
B)  Price should increase to $37.50 per share. 
C)  Price should decrease to $24.00 per share. 
D)  Nothing; price should remain at $30.00.

Question 12

Discuss the concept of dividend "smoothing."

Accepted Answer

Managers are quite concerned with the me

Question 13

U.S.corporations are likely to prefer dividends over capital gains on their own investments.

Accepted Answer

A) True 
 B)False

Question 14

In 2009,repurchases and dividends in the United States were just about equal,but together amounted to about 25% of total corporate earnings.

Accepted Answer

A) True 
 B)False

Question 15

MM's dividend irrelevance proposition assumes that dividends do not affect investment or borrowing policies.

Accepted Answer

A) True 
 B)False

Question 16

MM's assertion that dividend policy will not affect the value of the firm requires that dividend policy does not:

Accepted Answer

A)  alter the retained earnings of the firm. 
B)  affect investment and borrowing policies. 
C)  allow the payout ratio to change. 
D)  alter the number of outstanding shares. 
A)  alter the retained earnings of the firm. 
B)  affect investment and borrowing policies. 
C)  allow the payout ratio to change. 
D)  alter the number of outstanding shares.

Question 17

Under current tax law,the longer an investor waits to sell an inflated stock,the lower is the present value of the tax liability.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

When a company expects to maintain its dividend payments in the future,it will issue:

Accepted Answer

A)  regular dividends. 
B)  special dividends. 
C)  stock dividends. 
D)  extra dividends. 
A)  regular dividends. 
B)  special dividends. 
C)  stock dividends. 
D)  extra dividends.

Question 20

When a corporation engages in a 10% stock repurchase,it:

Accepted Answer

A)  offers shareholders 110 shares for every 100 they currently own. 
B)  purchases for cash 10% of the outstanding shares. 
C)  sells treasury stock at a 10% discount to investors. 
D)  purchases 10% of previously issued stock dividends. 
A)  offers shareholders 110 shares for every 100 they currently own. 
B)  purchases for cash 10% of the outstanding shares. 
C)  sells treasury stock at a 10% discount to investors. 
D)  purchases 10% of previously issued stock dividends.

Exam 17: Payout Policy

Investors often take the stock split decision as a signal of management's confidence in the future.

ABC Corp.stock is selling for $30 per share when a 10% stock dividend is declared.If you own 100 shares of ABC Corp.then you will receive:

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

A stock split and/or a stock dividend will result in an:

In a three-for-two stock split for a company that previously had 1 million shares outstanding selling at $100 per share and a total market value of $100 million,which of the following is true?

According to the MM dividend-irrelevance proposition,since investors do not need dividends to convert their shares to cash,they will not pay higher prices for firms with higher dividend payouts.

The primary purpose of laws prohibiting a firm from paying dividends that include its legal capital is to:

What would you expect to happen to the price of a share of stock on the day it goes ex-dividend? The price should:

An investor owns 5,000 shares,which is 1% of a corporation's outstanding stock before a stock repurchase.The investor did not sell any of his stock during the 25,000 share repurchase.Which of the following statements is correct?

XYZ Corp.has 1,000 shares outstanding and retained earnings of $25,000.Theoretically,what would you expect to happen to the price of their stock,currently selling for $30 per share,if a 25% stock dividend is declared?

Discuss the concept of dividend "smoothing."

U.S.corporations are likely to prefer dividends over capital gains on their own investments.

In 2009,repurchases and dividends in the United States were just about equal,but together amounted to about 25% of total corporate earnings.

MM's dividend irrelevance proposition assumes that dividends do not affect investment or borrowing policies.

MM's assertion that dividend policy will not affect the value of the firm requires that dividend policy does not:

Under current tax law,the longer an investor waits to sell an inflated stock,the lower is the present value of the tax liability.

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

When a company expects to maintain its dividend payments in the future,it will issue:

When a corporation engages in a 10% stock repurchase,it:

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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