Question 1

What effect does a stock dividend have on the book and market values of the firm?

Accepted Answer

A)  Book value increases; market value increases 
B)  Book value increases; market value decreases 
C)  Book value decreases; market value increases 
D)  Book and market values remain constant 
A)  Book value increases; market value increases 
B)  Book value increases; market value decreases 
C)  Book value decreases; market value increases 
D)  Book and market values remain constant

Question 2

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 3

Which of the following signals is most likely to elicit a decrease in share price?

Accepted Answer

A)  A repurchase of 5% of the firm's stock 
B)  An increase in the regular quarterly dividend 
C)  A decrease in the regular quarterly dividend 
D)  Borrowing funds in order to pay a cash dividend 
A)  A repurchase of 5% of the firm's stock 
B)  An increase in the regular quarterly dividend 
C)  A decrease in the regular quarterly dividend 
D)  Borrowing funds in order to pay a cash dividend

Question 4

What are the four main ways to implement stock repurchase?

Accepted Answer

There are four main ways to implement a

Question 5

What are the reasons felt by financial executives regarding their firms' reluctance to cut the dividend?

Accepted Answer

In descending order,the reasons are:
1.W

Question 6

In a two-for-one stock split,each investor would receive one additional share for each share already held.

Accepted Answer

A) True 
 B)False

Question 7

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 8

When a firm announces a two-for-one stock split (in the absence of other new information),investors should expect that:

Accepted Answer

A)  earnings per share will fall in half but stock price will remain the same. 
B)  stock price will fall in half but earnings per share will remain the same. 
C)  both earnings per share and stock price will remain the same. 
D)  both earnings per share and stock price will fall by half. 
A)  earnings per share will fall in half but stock price will remain the same. 
B)  stock price will fall in half but earnings per share will remain the same. 
C)  both earnings per share and stock price will remain the same. 
D)  both earnings per share and stock price will fall by half.

Question 9

Under the idealized conditions of MM,which statement is correct when a firm issues new stock in order to pay a cash dividend on existing shares?

Accepted Answer

A)  The new shares are worth less than the old shares. 
B)  The old shares drop in value to equal the new price. 
C)  The value of the firm is reduced by the amount of the dividend. 
D)  The value of the firm is unaffected. 
A)  The new shares are worth less than the old shares. 
B)  The old shares drop in value to equal the new price. 
C)  The value of the firm is reduced by the amount of the dividend. 
D)  The value of the firm is unaffected.

Question 10

Which of the following statements is correct about investors in Ajax Industries,which has just announced a three-for-one stock split?

Accepted Answer

A)  Investors will triple their wealth after the split. 
B)  Investors' wealth will fall by two-thirds after the split. 
C)  Percentage of ownership increases for the investors. 
D)  Earnings per share will fall by two-thirds after the split. 
A)  Investors will triple their wealth after the split. 
B)  Investors' wealth will fall by two-thirds after the split. 
C)  Percentage of ownership increases for the investors. 
D)  Earnings per share will fall by two-thirds after the split.

Question 11

A dividend clientele effect assumes that:

Accepted Answer

A)  investors prefer higher rather than lower dividends. 
B)  shareholders are indifferent regarding dividends. 
C)  investors have specific dividend preferences. 
D)  investors have identical dividend preferences. 
A)  investors prefer higher rather than lower dividends. 
B)  shareholders are indifferent regarding dividends. 
C)  investors have specific dividend preferences. 
D)  investors have identical dividend preferences.

Question 12

Briefly discuss each of the chronological "steps" in the process of paying a dividend.

Accepted Answer

The first step in the process of paying

Question 13

After the payment of a 25% stock dividend,an investor has 500 shares of stock and $400.What did the investor have prior to the stock dividend?

Accepted Answer

A)  300 shares of stock 
B)  400 shares of stock and $400 
C)  400 shares of stock and $320 
D)  625 shares of stock and $400 
A)  300 shares of stock 
B)  400 shares of stock and $400 
C)  400 shares of stock and $320 
D)  625 shares of stock and $400

Question 14

More often than not,the announcement of a stock split does result in a rise in the market price of the stock.

Accepted Answer

A) True 
 B)False

Question 15

Automatic dividend reinvestment plans allow firms to:

Accepted Answer

A)  pay dividends on a more frequent schedule. 
B)  reduce their cash outflow to shareholders. 
C)  transform regular dividends into stock dividends. 
D)  avoid the ex-dividend date reduction in stock price. 
A)  pay dividends on a more frequent schedule. 
B)  reduce their cash outflow to shareholders. 
C)  transform regular dividends into stock dividends. 
D)  avoid the ex-dividend date reduction in stock price.

Question 16

A stock is currently priced at $65 per share and will pay a $4 dividend in one year.What must the stock sell for in one year to meet investors' expectations of a 15% after-tax yield if dividends are taxed at 28%? Ignore capital gains taxes due to investor timing.

Accepted Answer

A)  $70.75 
B)  $71.87 
C)  $73.63 
D)  $76.00 
A)  $70.75 
B)  $71.87 
C)  $73.63 
D)  $76.00

Question 17

Assuming no market imperfections,which of the following processes would not be expected to have an effect on share price?

Accepted Answer

A)  Dividend declaration and payment 
B)  Stock repurchase 
C)  Stock dividend 
D)  Stock split 
A)  Dividend declaration and payment 
B)  Stock repurchase 
C)  Stock dividend 
D)  Stock split

Question 18

A 50% stock dividend provides the same return to an investor as a 50% cash dividend.

Accepted Answer

A) True 
 B)False

Question 19

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. 
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. 
D)  only bondholders benefit from stock dividends.

Question 20

A share repurchase is said to be equivalent to the payment of a cash dividend because each strategy:

Accepted Answer

A)  causes share price to decline. 
B)  causes share price to stay the same. 
C)  creates the same tax liability for the investor. 
D)  leaves the firm with the same amount of assets. 
A)  causes share price to decline. 
B)  causes share price to stay the same. 
C)  creates the same tax liability for the investor. 
D)  leaves the firm with the same amount of assets.

Exam 17: Payout Policy

What effect does a stock dividend have on the book and market values of the firm?

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

Which of the following signals is most likely to elicit a decrease in share price?

What are the four main ways to implement stock repurchase?

What are the reasons felt by financial executives regarding their firms' reluctance to cut the dividend?

In a two-for-one stock split,each investor would receive one additional share for each share already held.

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

When a firm announces a two-for-one stock split (in the absence of other new information),investors should expect that:

Under the idealized conditions of MM,which statement is correct when a firm issues new stock in order to pay a cash dividend on existing shares?

Which of the following statements is correct about investors in Ajax Industries,which has just announced a three-for-one stock split?

A dividend clientele effect assumes that:

Briefly discuss each of the chronological "steps" in the process of paying a dividend.

After the payment of a 25% stock dividend,an investor has 500 shares of stock and $400.What did the investor have prior to the stock dividend?

More often than not,the announcement of a stock split does result in a rise in the market price of the stock.

Automatic dividend reinvestment plans allow firms to:

A stock is currently priced at $65 per share and will pay a $4 dividend in one year.What must the stock sell for in one year to meet investors' expectations of a 15% after-tax yield if dividends are taxed at 28%? Ignore capital gains taxes due to investor timing.

Assuming no market imperfections,which of the following processes would not be expected to have an effect on share price?

A 50% stock dividend provides the same return to an investor as a 50% cash dividend.

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

A share repurchase is said to be equivalent to the payment of a cash dividend because each strategy:

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Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

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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

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Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

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