Question 1

Which one of the following favors a low dividend policy?

Accepted Answer

A) the tax on capital gains is deferred until the gain is realized 
B) few, if any, positive net present value projects are available to a firm 
C) a majority of the shareholders has a low relevant tax rate 
D) a majority of the shareholders has better investment opportunities with similar risks 
E) corporate tax rates exceed personal tax rates 
A) the tax on capital gains is deferred until the gain is realized 
B) few, if any, positive net present value projects are available to a firm 
C) a majority of the shareholders has a low relevant tax rate 
D) a majority of the shareholders has better investment opportunities with similar risks 
E) corporate tax rates exceed personal tax rates

Question 2

Which of the following tends to increase the ability of a shareholder to create his or her own homemade dividend policy?
I.low taxes on capital gains
II.dividend reinvestment plans
III.large holdings of shares
IV.low cost equity purchases

Accepted Answer

A) II only 
B) II and III only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV 
A) II only 
B) II and III only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV

Question 3

Billingsley United declared a $0.20 a share dividend on Thursday,October 16.The dividend will be paid on Monday,November 10 to shareholders of record on Friday,October 31.Which one of the following is the ex-dividend date?

Accepted Answer

A) Tuesday, October 28 
B) Wednesday, October 29 
C) Thursday, October 30 
D) Wednesday, November 5 
E) Thursday, November 6 
A) Tuesday, October 28 
B) Wednesday, October 29 
C) Thursday, October 30 
D) Wednesday, November 5 
E) Thursday, November 6

Question 4

An investor is more likely to prefer a high dividend payout if a firm:

Accepted Answer

A) has high flotation costs. 
B) has few, if any, positive net present value projects. 
C) has lower tax rates than the investor. 
D) has a stock price that is increasing rapidly. 
E) offers substantial gains on its equities, which are taxed at a favorable rate. 
A) has high flotation costs. 
B) has few, if any, positive net present value projects. 
C) has lower tax rates than the investor. 
D) has a stock price that is increasing rapidly. 
E) offers substantial gains on its equities, which are taxed at a favorable rate.

Question 5

A one-for-four reverse stock split will:

Accepted Answer

A) increase the par value by 25 percent. 
B) increase the number of shares outstanding by 400 percent. 
C) increase the market value but not affect the par value per share. 
D) increase a $1 par value to $4. 
E) increase a $1 par value to $5. 
A) increase the par value by 25 percent. 
B) increase the number of shares outstanding by 400 percent. 
C) increase the market value but not affect the par value per share. 
D) increase a $1 par value to $4. 
E) increase a $1 par value to $5.

Question 6

Lester's Frozen Foods just paid out $0.50 a share to its shareholders.The cash for these payments came from a large sale of assets,not from any earnings of the firm.What are these payments to shareholders called?

Accepted Answer

A) dividends 
B) distributions 
C) repurchases 
D) payments-in-kind 
E) stock splits 
A) dividends 
B) distributions 
C) repurchases 
D) payments-in-kind 
E) stock splits

Question 7

Which one of the following statements related to dividend policy is correct?

Accepted Answer

A) The primary question related to dividend policy is whether or not a firm should ever pay a dividend. 
B) Both dividends and dividend policy are irrelevant. 
C) Dividend policy focuses on the timing of dividend payments. 
D) Homemade dividends increase the importance of a firm's dividend policy decisions. 
E) Whether or not a firm ever pays a dividend is irrelevant to equity valuation. 
A) The primary question related to dividend policy is whether or not a firm should ever pay a dividend. 
B) Both dividends and dividend policy are irrelevant. 
C) Dividend policy focuses on the timing of dividend payments. 
D) Homemade dividends increase the importance of a firm's dividend policy decisions. 
E) Whether or not a firm ever pays a dividend is irrelevant to equity valuation.

Question 8

Della's Pool Halls has 12,000 shares of stock outstanding with a par value of $1 per share and a market price of $39 a share.The firm just announced a 4-for-3 stock split.How many shares of stock will be outstanding after the split?

Accepted Answer

A) 9,000 shares 
B) 10,000 shares 
C) 12,000 shares 
D) 14,600 shares 
E) 16,000 shares 
A) 9,000 shares 
B) 10,000 shares 
C) 12,000 shares 
D) 14,600 shares 
E) 16,000 shares

Question 9

The information content of a dividend increase generally signals that:

Accepted Answer

A) the firm has a one-time surplus of cash. 
B) the firm has few, if any, net present value projects to pursue. 
C) management believes earnings growth will be strong going forward. 
D) the firm has more cash than it needs due to a decline in future orders. 
E) dividends thereafter will be lower. 
A) the firm has a one-time surplus of cash. 
B) the firm has few, if any, net present value projects to pursue. 
C) management believes earnings growth will be strong going forward. 
D) the firm has more cash than it needs due to a decline in future orders. 
E) dividends thereafter will be lower.

Question 10

A reverse stock split is defined as:

Accepted Answer

A) an increase in the number of shares outstanding that does not affect owners' equity. 
B) a firm buying back existing shares of its stock on the open market. 
C) a firm selling new shares of stock on the open market. 
D) a decrease in the number of shares outstanding that does not affect owners' equity. 
E) a decrease in both the number of shares outstanding and the price per share. 
A) an increase in the number of shares outstanding that does not affect owners' equity. 
B) a firm buying back existing shares of its stock on the open market. 
C) a firm selling new shares of stock on the open market. 
D) a decrease in the number of shares outstanding that does not affect owners' equity. 
E) a decrease in both the number of shares outstanding and the price per share.

Question 11

Josh's,Inc.has 7,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $32 a share.The balance sheet shows $82,000 in the capital in excess of par account,$7,000 in the common stock account,and $64,800 in the retained earnings account.The firm just announced a 10 percent stock dividend.What is the value of the capital in excess of par account after the dividend?

Accepted Answer

A) $76,000 
B) $82,000 
C) $97,700 
D) $103,700 
E) $104,400 
A) $76,000 
B) $82,000 
C) $97,700 
D) $103,700 
E) $104,400

Question 12

Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding?

Accepted Answer

A) special dividend 
B) stock split 
C) share repurchase 
D) rights offer 
E) liquidating dividend 
A) special dividend 
B) stock split 
C) share repurchase 
D) rights offer 
E) liquidating dividend

Question 13

Which one of the following statements appears to be supported by the current dividend policies of U.S.industrial firms?

Accepted Answer

A) Firms tend to increase the dividend amount per share, even when it's unclear if the increase can be maintained. 
B) Investors no longer react to changes, either up or down, in dividends. 
C) Newer, high-growth firms tend to pay larger dividends than mature firms. 
D) Dividends are still viewed by shareholders as a signal of a firm's future outlook. 
E) Managers are no longer hesitant to lower dividend payments. 
A) Firms tend to increase the dividend amount per share, even when it's unclear if the increase can be maintained. 
B) Investors no longer react to changes, either up or down, in dividends. 
C) Newer, high-growth firms tend to pay larger dividends than mature firms. 
D) Dividends are still viewed by shareholders as a signal of a firm's future outlook. 
E) Managers are no longer hesitant to lower dividend payments.

Question 14

Built Rite Corp.is evaluating an extra dividend versus a share repurchase.In either case,$5,500 would be spent.Current earnings are $0.80 per share,and the stock currently sells for $33 per share.There are 250 shares outstanding.Ignore taxes and other imperfections.You own one share of stock in this company.If the company issues the dividend,your total investment will be worth ____ as compared to ____ if the company opts for a share repurchase.

Accepted Answer

A) $11; $11 
B) $11; $22 
C) $11; $33 
D) $23; $33 
E) $33; $33 
A) $11; $11 
B) $11; $22 
C) $11; $33 
D) $23; $33 
E) $33; $33

Question 15

Which one of the following statements related to cash dividends is correct?

Accepted Answer

A) Extra cash dividends cannot be repeated in the future. 
B) A dividend is never a liability until it has been declared. 
C) If a firm has paid regular quarterly dividends for at least five consecutive years it is legally obligated to continue doing so. 
D) Regular cash dividends reduce paid-in capital. 
E) The dividend yield expresses the annual dividend as a percentage of net income. 
A) Extra cash dividends cannot be repeated in the future. 
B) A dividend is never a liability until it has been declared. 
C) If a firm has paid regular quarterly dividends for at least five consecutive years it is legally obligated to continue doing so. 
D) Regular cash dividends reduce paid-in capital. 
E) The dividend yield expresses the annual dividend as a percentage of net income.

Question 16

Which of the following tend to keep dividends low?
I.shareholders desiring current income
II.terms contained in bond indenture agreements
III.the desire to maintain constant dividends over time
IV.flotation costs

Accepted Answer

A) II and III only 
B) I and IV only 
C) II, III, and IV only 
D) I, II, and III only 
E) I, II, III, and IV 
A) II and III only 
B) I and IV only 
C) II, III, and IV only 
D) I, II, and III only 
E) I, II, III, and IV

Question 17

Steve owns 3,000 shares of NOP,Inc.stock,which he purchased six years ago at a price of $22 a share.Today,these shares are selling for $68 each.Assume the current tax laws are such that Steve is subject to a tax rate of 25 percent on both his dividend income and his capital gains.From Steve's point of view,a stock repurchase today: (Ignore costs)

Accepted Answer

A) is equivalent to a cash dividend in all respects. 
B) is more desirable than a cash dividend in respect to taxes. 
C) will result in the same tax liability as an equivalent cash dividend. 
D) is more highly taxed than a cash dividend. 
E) is totally unacceptable to him. 
A) is equivalent to a cash dividend in all respects. 
B) is more desirable than a cash dividend in respect to taxes. 
C) will result in the same tax liability as an equivalent cash dividend. 
D) is more highly taxed than a cash dividend. 
E) is totally unacceptable to him.

Question 18

The dividend market is in equilibrium when:

Accepted Answer

A) all firms adopt a low dividend policy. 
B) half of the firms adopt a low dividend policy and half adopt a high dividend policy. 
C) all clienteles are satisfied. 
D) dividends remain constant and no special dividends are declared. 
E) the total amount of the annual dividends is equal to the net income for the year. 
A) all firms adopt a low dividend policy. 
B) half of the firms adopt a low dividend policy and half adopt a high dividend policy. 
C) all clienteles are satisfied. 
D) dividends remain constant and no special dividends are declared. 
E) the total amount of the annual dividends is equal to the net income for the year.

Question 19

Kurt's Market has 8,000 shares of stock outstanding with a par value of $1 per share and a market value of $13 per share.The balance sheet shows $8,000 in the common stock account,$26,000 in the capital in excess of par account,and $36,800 in the retained earnings account.The firm just announced a 100 percent stock dividend.What will be the balance in the retained earnings account after this dividend?

Accepted Answer

A) $28,800 
B) $36,800 
C) $38,700 
D) $40,700 
E) $128,700 
A) $28,800 
B) $36,800 
C) $38,700 
D) $40,700 
E) $128,700

Question 20

A $0.60 quarterly cash payment paid by T.L.Jones & Co.to its shareholders in the normal course of business is called a:

Accepted Answer

A) repurchase. 
B) liquidating dividend. 
C) regular cash dividend. 
D) special dividend. 
E) extra cash dividend. 
A) repurchase. 
B) liquidating dividend. 
C) regular cash dividend. 
D) special dividend. 
E) extra cash dividend.

Exam 17: Dividends and Payout Policy

Which one of the following favors a low dividend policy?

Which of the following tends to increase the ability of a shareholder to create his or her own homemade dividend policy? I.low taxes on capital gains II.dividend reinvestment plans III.large holdings of shares IV.low cost equity purchases

Billingsley United declared a $0.20 a share dividend on Thursday,October 16.The dividend will be paid on Monday,November 10 to shareholders of record on Friday,October 31.Which one of the following is the ex-dividend date?

An investor is more likely to prefer a high dividend payout if a firm:

A one-for-four reverse stock split will:

Lester's Frozen Foods just paid out $0.50 a share to its shareholders.The cash for these payments came from a large sale of assets,not from any earnings of the firm.What are these payments to shareholders called?

Which one of the following statements related to dividend policy is correct?

Della's Pool Halls has 12,000 shares of stock outstanding with a par value of $1 per share and a market price of $39 a share.The firm just announced a 4-for-3 stock split.How many shares of stock will be outstanding after the split?

The information content of a dividend increase generally signals that:

A reverse stock split is defined as:

Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding?

Which one of the following statements appears to be supported by the current dividend policies of U.S.industrial firms?

Which one of the following statements related to cash dividends is correct?

Which of the following tend to keep dividends low? I.shareholders desiring current income II.terms contained in bond indenture agreements III.the desire to maintain constant dividends over time IV.flotation costs

The dividend market is in equilibrium when:

A $0.60 quarterly cash payment paid by T.L.Jones & Co.to its shareholders in the normal course of business is called a:

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters