Question 1

Which one of these is the most common method of share repurchase?

Accepted Answer

A)  Tender offer 
B)  Auction repurchase 
C)  Direct negotiation 
D)  Open-market repurchase 
A)  Tender offer 
B)  Auction repurchase 
C)  Direct negotiation 
D)  Open-market repurchase

Question 2

Which one 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 3

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 one 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 4

What would you expect to happen to the price of a share of stock on the day it goes ex-dividend if you ignore taxes? 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 5

Which of the following statements is false?

Accepted Answer

A)  Most mature companies pay dividends. 
B)  Many companies pay dividends and repurchase stock. 
C)  Repurchases fluctuate more than dividends. 
D)  Stock repurchases have become less common over the past 30 years. 
A)  Most mature companies pay dividends. 
B)  Many companies pay dividends and repurchase stock. 
C)  Repurchases fluctuate more than dividends. 
D)  Stock repurchases have become less common over the past 30 years.

Question 6

Stock repurchases are more volatile than dividends.

Accepted Answer

A) True 
 B)False

Question 7

MM's proposition of dividend irrelevance depends upon:

Accepted Answer

A)  firms maintaining a constant dividend payout. 
B)  dividends being taxed the same as capital gains. 
C)  the existence of a dividend clientele. 
D)  the efficiency of capital markets. 
A)  firms maintaining a constant dividend payout. 
B)  dividends being taxed the same as capital gains. 
C)  the existence of a dividend clientele. 
D)  the efficiency of capital markets.

Question 8

Assuming no market imperfections,which one of the following 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 9

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

Accepted Answer

A)  Both the book and market values increase 
B)  Book value increases; market value decreases 
C)  Book value decreases; market value increases 
D)  Both the book and market values remain constant 
A)  Both the book and market values increase 
B)  Book value increases; market value decreases 
C)  Book value decreases; market value increases 
D)  Both the book and market values remain constant

Question 10

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 11

Which one of the following statements regarding stock dividends and stock splits is true?

Accepted Answer

A)  A two-for-one stock split is equivalent to a 50% stock dividend. 
B)  A three-for-one stock split is equivalent to a 66% stock dividend. 
C)  A three-for-two stock split is equivalent to a 100% stock dividend. 
D)  A three-for-two stock split is equivalent to a 50% stock dividend. 
A)  A two-for-one stock split is equivalent to a 50% stock dividend. 
B)  A three-for-one stock split is equivalent to a 66% stock dividend. 
C)  A three-for-two stock split is equivalent to a 100% stock dividend. 
D)  A three-for-two stock split is equivalent to a 50% stock dividend.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is correct?

Accepted Answer

A)  Investors rightly prefer repurchases because the reduced number of shares increases earnings per share. 
B)  Companies with large repurchase programs usually finance them by a cut in dividends. 
C)  Companies pay out as dividends whatever is left over after making needed capital investments. 
D)  A stock repurchase does not increase stock price but it does avoid the fall in price that would occur on the ex-dividend date. 
A)  Investors rightly prefer repurchases because the reduced number of shares increases earnings per share. 
B)  Companies with large repurchase programs usually finance them by a cut in dividends. 
C)  Companies pay out as dividends whatever is left over after making needed capital investments. 
D)  A stock repurchase does not increase stock price but it does avoid the fall in price that would occur on the ex-dividend date.

Question 14

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

Question 15

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 16

The share price declines when a stock repurchase occurs.

Accepted Answer

A) True 
 B)False

Question 17

Which one of these firms would you most expect to have the highest payout percentage?

Accepted Answer

A)  New technology firm 
B)  Mature firm in a declining industry 
C)  Mature firm with limited growth opportunities 
D)  Rapidly expanding firm in a growth industry 
A)  New technology firm 
B)  Mature firm in a declining industry 
C)  Mature firm with limited growth opportunities 
D)  Rapidly expanding firm in a growth industry

Question 18

Zeta Corp has 1,000 shares outstanding.Its stock is priced at $100 a share and shareholders expect Zeta to pay dividends of $10 a year in perpetuity.Now the president suddenly announces that it will keep the total payout the same but will pay only a quarter of the total amount as dividends and use the remaining cash to buy back stock.What will happen to the share price now and how much will the share price grow each year?

Accepted Answer

A)  The value of the shares will be unchanged by the announcement and will not grow.0%. 
B)  The share price will be unchanged by the announcement. Subsequently the share price will grow by 7.5% each year. 
C)  The share price will halve and then grow by 7.5% a year. 
D)  The share price will be unchanged by the announcement and will decline by 10% a year. 
A)  The value of the shares will be unchanged by the announcement and will not grow.0%. 
B)  The share price will be unchanged by the announcement. Subsequently the share price will grow by 7.5% each year. 
C)  The share price will halve and then grow by 7.5% a year. 
D)  The share price will be unchanged by the announcement and will decline by 10% a year.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Firms can increase their stock price by increasing their dividends to a level that appeals to the clientele group that prefers high-dividend stocks.

Accepted Answer

A) True 
 B)False

Exam 17: Payout Policy

Which one of these is the most common method of share repurchase?

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

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 one of the following statements is correct?

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

Which of the following statements is false?

Stock repurchases are more volatile than dividends.

MM's proposition of dividend irrelevance depends upon:

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

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

Managers have been characterized as reluctant to increase dividends if:

Which one of the following statements regarding stock dividends and stock splits is true?

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

Which of the following statements is correct?

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:

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

The share price declines when a stock repurchase occurs.

Which one of these firms would you most expect to have the highest payout percentage?

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

Firms can increase their stock price by increasing their dividends to a level that appeals to the clientele group that prefers high-dividend stocks.

Goals and Governance of the Firm

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 and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers,Acquisitions,and Corporate Control

International Financial Management

Options

Risk Management

Filters