Question 1

A key limitation of Miller and Modigliani's theory of dividend irrelevance is that they assume there is a perfect capital market with no ___________.

Accepted Answer

The answer of A key limitation of Miller and Modigliani's...

Question 2

In Australia companies generally pay dividends:

Accepted Answer

A) twice a year. 
B) three times a year. 
C) four times a year. 
D) at least twice a year. 
A) twice a year. 
B) three times a year. 
C) four times a year. 
D) at least twice a year.

Question 3

A pure residual dividend policy requires:

Accepted Answer

A) that dividends be paid on a constant year-to-year basis. 
B) dividends to be paid only if profits are in excess of investment needs. 
C) extra finance to be raised externally to meet dividend needs. 
D) franked dividends to be paid if a positive balance exists in the franking account. 
A) that dividends be paid on a constant year-to-year basis. 
B) dividends to be paid only if profits are in excess of investment needs. 
C) extra finance to be raised externally to meet dividend needs. 
D) franked dividends to be paid if a positive balance exists in the franking account.

Question 4

Which of the following statements is true?

Accepted Answer

A) Announcements of dividend reinvestment plans,prior to the introduction of imputation,were associated with a significantly positive market response. 
B) Announcements of dividend reinvestment plans,after the introduction of imputation,were associated with a significantly positive market response. 
C) Dividend election schemes were more popular prior to the introduction of imputation. 
D) None of the given options. 
A) Announcements of dividend reinvestment plans,prior to the introduction of imputation,were associated with a significantly positive market response. 
B) Announcements of dividend reinvestment plans,after the introduction of imputation,were associated with a significantly positive market response. 
C) Dividend election schemes were more popular prior to the introduction of imputation. 
D) None of the given options.

Question 5

Which of the following statements is false?

Accepted Answer

A) Resident investors,who have marginal tax rates equal to or less than the company tax rate,will always prefer that companies pay dividends instead of retaining profits. 
B) The payment of dividends,franked or unfranked,can reduce future capital gains tax. 
C) An unexpected increase in dividends should cause an increase in the market's expectation of future earnings. 
D) None of the given options. 
A) Resident investors,who have marginal tax rates equal to or less than the company tax rate,will always prefer that companies pay dividends instead of retaining profits. 
B) The payment of dividends,franked or unfranked,can reduce future capital gains tax. 
C) An unexpected increase in dividends should cause an increase in the market's expectation of future earnings. 
D) None of the given options.

Question 6

N Ltd shares have a closing price of $10.85 on 8 November 2005.On the next day they will begin trading on an ex-dividend basis.The dividend is 40 cents per share fully franked at the company tax rate of 30 per cent.What is the expected ex-dividend share price?

Accepted Answer

A) $10.82 
B) $10.20 
C) $10.28 
D) Cannot be calculated as sufficient information is not available. 
A) $10.82 
B) $10.20 
C) $10.28 
D) Cannot be calculated as sufficient information is not available.

Question 7

A __________________________ is an arrangement made by a company which gives shareholders the option of receiving their dividends in one or more forms.

Accepted Answer

dividend r

Question 8

Which statement most accurately describes dividend irrelevance?

Accepted Answer

A) Dividends are irrelevant because investors are only interested in company profits,not cash distributions from those profits. 
B) For each dollar received as dividends,the original shareholders give up future dividends with a present value of one dollar,which reduces the value of their shares by one dollar. 
C) For each dollar received in dividend,the original shareholders give up future dividends with a present value of one dollar,which maintains the value of their shares. 
D) None of the given options. 
A) Dividends are irrelevant because investors are only interested in company profits,not cash distributions from those profits. 
B) For each dollar received as dividends,the original shareholders give up future dividends with a present value of one dollar,which reduces the value of their shares by one dollar. 
C) For each dollar received in dividend,the original shareholders give up future dividends with a present value of one dollar,which maintains the value of their shares. 
D) None of the given options.

Question 9

Dividend reinvestment schemes are a form of payout policy that can satisfy the desire of resident investors for the payment of the maximum possible franked dividends,while ensuring the company does not run short of cash to finance new investments.

Accepted Answer

A) True 
 B)False

Question 10

If a company earns income of $1 million before company tax,has tax deductions of $0.2 million,has additional taxable income of $0.1 million related to previous years and is on a marginal tax rate of 30%,what is its effective marginal tax rate on current income?

Accepted Answer

A) 30% 
B) 32.7% 
C) 24% 
D) 27% 
A) 30% 
B) 32.7% 
C) 24% 
D) 27%

Question 11

The tax clientele effect implies that share price is indifferent to dividend policy because:

Accepted Answer

A) share price depends on the value of assets in place. 
B) investors have no say in dividend policy. 
C) in equilibrium,the range of dividend policies available satisfies the needs of investors so that one clientele is as good as another. 
D) investors in high marginal tax brackets would pay a premium for shares of companies that pay no dividends. 
A) share price depends on the value of assets in place. 
B) investors have no say in dividend policy. 
C) in equilibrium,the range of dividend policies available satisfies the needs of investors so that one clientele is as good as another. 
D) investors in high marginal tax brackets would pay a premium for shares of companies that pay no dividends.

Question 12

Which type of dividend carries a credit for income tax paid by the company?

Accepted Answer

A) Special dividend. 
B) Cum dividend. 
C) Liquidating dividend. 
D) Franked dividend. 
A) Special dividend. 
B) Cum dividend. 
C) Liquidating dividend. 
D) Franked dividend.

Question 13

A characteristic of franked dividends that differentiates them from unfranked dividends is:

Accepted Answer

A) franked dividends carry tax credits related to the income tax paid by the company. 
B) the gross amount of dividends paid is different. 
C) franked dividends are indexed for inflation,while unfranked dividends are not. 
D) the amount of payment received by the shareholder from the company. 
A) franked dividends carry tax credits related to the income tax paid by the company. 
B) the gross amount of dividends paid is different. 
C) franked dividends are indexed for inflation,while unfranked dividends are not. 
D) the amount of payment received by the shareholder from the company.

Question 14

A residual dividend policy differs from a stable dividend policy in the following respect:

Accepted Answer

A) Dividends can only be stable under a residual policy if profits are constant. 
B) Dividends under the residual policy method fluctuate from year to year depending on profits. 
C) Dividends are a function of profits under the stable policy method but are a function of investment needs under the residual policy method. 
D) Dividends are a function of long-term profits under the stable policy method but are a function of investment needs under the residual policy method. 
A) Dividends can only be stable under a residual policy if profits are constant. 
B) Dividends under the residual policy method fluctuate from year to year depending on profits. 
C) Dividends are a function of profits under the stable policy method but are a function of investment needs under the residual policy method. 
D) Dividends are a function of long-term profits under the stable policy method but are a function of investment needs under the residual policy method.

Question 15

Under the imputation tax system,dividends are only taxed once at the company tax rate.

Accepted Answer

A) True 
 B)False

Question 16

If managers commit themselves to paying out cash in excess of investment needs as dividends rather than retaining it within the company,shareholders' wealth may increase because:

Accepted Answer

A) it indicates that management will not waste resources. 
B) shareholders prefer dividends now rather than in the future. 
C) it reflects badly on future investments. 
D) it reflects positively on future investments. 
A) it indicates that management will not waste resources. 
B) shareholders prefer dividends now rather than in the future. 
C) it reflects badly on future investments. 
D) it reflects positively on future investments.

Question 17

Share buybacks are a means by which a company can improve its performance measures,particularly earnings per share and net assets per share.

Accepted Answer

A) True 
 B)False

Question 18

Companies are able to repurchase up to 10 per cent of their ordinary shares in a 12-month period often known as the:

Accepted Answer

A) 12/10 rule. 
B) 10/12 rule. 
C) 12/10 limit. 
D) 10/12 limit. 
A) 12/10 rule. 
B) 10/12 rule. 
C) 12/10 limit. 
D) 10/12 limit.

Question 19

Under the classical tax system,dividends were taxed in the hands of the investor at the:

Accepted Answer

A) standard rate of 35%. 
B) standard rate of 30%. 
C) withholding tax rate. 
D) investor's marginal tax rate. 
A) standard rate of 35%. 
B) standard rate of 30%. 
C) withholding tax rate. 
D) investor's marginal tax rate.

Question 20

Under the Modigliani and Miller dividend irrelevance argument:

Accepted Answer

A) a firm's investment decision is a function of the dividend policy. 
B) share prices are dependent upon a firm's dividend policy. 
C) shareholders prefer capital gain income to dividend income. 
D) shareholders are indifferent between the payment of dividends and the retention of profits because cash paid out as dividends can be replaced without cost by issuing additional shares. 
A) a firm's investment decision is a function of the dividend policy. 
B) share prices are dependent upon a firm's dividend policy. 
C) shareholders prefer capital gain income to dividend income. 
D) shareholders are indifferent between the payment of dividends and the retention of profits because cash paid out as dividends can be replaced without cost by issuing additional shares.

Exam 11: Payout Policy

A key limitation of Miller and Modigliani's theory of dividend irrelevance is that they assume there is a perfect capital market with no ___________.

In Australia companies generally pay dividends:

A pure residual dividend policy requires:

Which of the following statements is true?

Which of the following statements is false?

N Ltd shares have a closing price of $10.85 on 8 November 2005.On the next day they will begin trading on an ex-dividend basis.The dividend is 40 cents per share fully franked at the company tax rate of 30 per cent.What is the expected ex-dividend share price?

A __________________________ is an arrangement made by a company which gives shareholders the option of receiving their dividends in one or more forms.

Which statement most accurately describes dividend irrelevance?

Dividend reinvestment schemes are a form of payout policy that can satisfy the desire of resident investors for the payment of the maximum possible franked dividends,while ensuring the company does not run short of cash to finance new investments.

If a company earns income of $1 million before company tax,has tax deductions of $0.2 million,has additional taxable income of $0.1 million related to previous years and is on a marginal tax rate of 30%,what is its effective marginal tax rate on current income?

The tax clientele effect implies that share price is indifferent to dividend policy because:

Which type of dividend carries a credit for income tax paid by the company?

A characteristic of franked dividends that differentiates them from unfranked dividends is:

A residual dividend policy differs from a stable dividend policy in the following respect:

Under the imputation tax system,dividends are only taxed once at the company tax rate.

If managers commit themselves to paying out cash in excess of investment needs as dividends rather than retaining it within the company,shareholders' wealth may increase because:

Share buybacks are a means by which a company can improve its performance measures,particularly earnings per share and net assets per share.

Companies are able to repurchase up to 10 per cent of their ordinary shares in a 12-month period often known as the:

Under the classical tax system,dividends were taxed in the hands of the investor at the:

Under the Modigliani and Miller dividend irrelevance argument:

Introduction

Consumption, Investment and the Capital Market

The Time Value of Money: An Introduction to Financial Mathematics

Applying the Time Value of Money to Security Valuation

Project Evaluation: Principles and Methods

The Application of Project Evaluation Methods

Risk and Return

The Capital Market

Sources of Finance: Equity

Sources of Finance: Debt

Principles of Capital Structure

Capital Structure Decisions

The Cost of Capital and Taxation Issues in Project Evaluation

Leasing and Other Equipment Finance

Capital Market Efficiency

Futures Contracts

Options and Contingent Claims

Analysis of Takeovers

International Financial Management

Management of Short-Term Assets: Inventory

Management of Short-Term Assets: Liquid Assets and Accounts Receivable

Filters