Question 1

Which of the following statements is FALSE?

Accepted Answer

A) In perfect capital markets,holding fixed the investment policy of a firm,the firm's choice of dividend policy is irrelevant and does not affect the initial share price. 
B) In a perfect capital market,when a dividend is paid,the share price drops by the amount of the dividend when the stock begins to trade ex-dividend. 
C) In perfect capital markets,an open market share repurchase has no effect on the stock price,and the stock price is the same as the ex-dividend price if a dividend were paid instead. 
D) In perfect capital markets,investors are indifferent between the firm distributing funds via dividends or share repurchases.By reinvesting dividends or selling shares,they can replicate either payout method on their own. 
A) In perfect capital markets,holding fixed the investment policy of a firm,the firm's choice of dividend policy is irrelevant and does not affect the initial share price. 
B) In a perfect capital market,when a dividend is paid,the share price drops by the amount of the dividend when the stock begins to trade ex-dividend. 
C) In perfect capital markets,an open market share repurchase has no effect on the stock price,and the stock price is the same as the ex-dividend price if a dividend were paid instead. 
D) In perfect capital markets,investors are indifferent between the firm distributing funds via dividends or share repurchases.By reinvesting dividends or selling shares,they can replicate either payout method on their own.

Question 2

Which of the following statements is FALSE?

Accepted Answer

A) Stocks generally trade in lots of 1000 shares,and in any case do not trade in units less than one share. 
B) Non-cash special dividends are commonly used to spin off assets or a subsidiary as a separate company. 
C) The typical motivation for a stock split is to keep the share price in a range thought to be attractive to small investors. 
D) If a company declares a 10% stock dividend,each shareholder will receive one new share of stock for every 10 shares already owned. 
A) Stocks generally trade in lots of 1000 shares,and in any case do not trade in units less than one share. 
B) Non-cash special dividends are commonly used to spin off assets or a subsidiary as a separate company. 
C) The typical motivation for a stock split is to keep the share price in a range thought to be attractive to small investors. 
D) If a company declares a 10% stock dividend,each shareholder will receive one new share of stock for every 10 shares already owned.

Question 3

The price per share of Iota if they decide not to use the $200 million to expand and hold the cash instead is closest to:

Accepted Answer

A) $16.50 
B) $16.80 
C) $19.00 
D) $13.75 
A) $16.50 
B) $16.80 
C) $19.00 
D) $13.75

Question 4

If Luther decides to pay the dividend immediately the dividend per share will be closest to:

Accepted Answer

A) $1.05 
B) $5.25 
C) $5.00 
D) $4.75 
A) $1.05 
B) $5.25 
C) $5.00 
D) $4.75

Question 5

Net of capital gains taxes,the amount the total value of d'Anconia Copper shares increase is closest to:

Accepted Answer

A) $5.5 million 
B) $6.5 million 
C) $7.0 million 
D) $10.0 million 
A) $5.5 million 
B) $6.5 million 
C) $7.0 million 
D) $10.0 million

Question 6

The effective dividend tax rate in 1999 is closest to:

Accepted Answer

A) 0% 
B) 20% 
C) 25% 
D) 30% 
A) 0% 
B) 20% 
C) 25% 
D) 30%

Question 7

Which of the following statements is FALSE?

Accepted Answer

A) A firm must balance the tax costs of holding cash with the potential benefits of having to raise external funds in the future. 
B) Paying out excess cash through dividends or share repurchases can boost the stock price by reducing managers' ability and temptation to waste resources. 
C) If there is a reasonable likelihood that future earnings will be insufficient to fund future positive-NPV investment opportunities,a firm may start accumulating cash to make up the difference. 
D) According to the managerial entrenchment theory of payout policy,managers pay out cash only when pressured to do so by the firm's investors. 
A) A firm must balance the tax costs of holding cash with the potential benefits of having to raise external funds in the future. 
B) Paying out excess cash through dividends or share repurchases can boost the stock price by reducing managers' ability and temptation to waste resources. 
C) If there is a reasonable likelihood that future earnings will be insufficient to fund future positive-NPV investment opportunities,a firm may start accumulating cash to make up the difference. 
D) According to the managerial entrenchment theory of payout policy,managers pay out cash only when pressured to do so by the firm's investors.

Question 8

Net of ordinary income taxes,the amount that investors would have if they invested the $200 million on their own is closest to:

Accepted Answer

A) $5.5 million 
B) $6.5 million 
C) $7.0 million 
D) $10.0 million 
A) $5.5 million 
B) $6.5 million 
C) $7.0 million 
D) $10.0 million

Question 9

The effective dividend tax rate for a pension fund in 1999 is closest to:

Accepted Answer

A) 40% 
B) 20% 
C) 0% 
D) 25% 
A) 40% 
B) 20% 
C) 0% 
D) 25%

Question 10

The effective dividend tax rate for a one-year individual investor in 2006 is closest to:

Accepted Answer

A) 20% 
B) 15% 
C) 35% 
D) 0% 
A) 20% 
B) 15% 
C) 35% 
D) 0%

Question 11

Assuming Luther issues a 5:2 stock split,then Luther's new share price is closest to:

Accepted Answer

A) $32.00 
B) $16.00 
C) $24.00 
D) $30.00 
A) $32.00 
B) $16.00 
C) $24.00 
D) $30.00

Question 12

A firm can repurchase shares through a(n)________ in which it offers to buy shares at a prespecified price during a short time period-generally within 20 days.

Accepted Answer

A) tender offer 
B) open market share repurchases 
C) targeted repurchase 
D) Dutch auction share repurchase 
A) tender offer 
B) open market share repurchases 
C) targeted repurchase 
D) Dutch auction share repurchase

Question 13

Which of the following statements is FALSE?

Accepted Answer

A) Firms adjust dividends relatively infrequently,and dividends are much less volatile than earnings.This practice of maintaining relatively constant dividends is called dividend signaling. 
B) When a firm increases its dividend,it sends a positive signal to investors that management expects to be able to afford the higher dividend for the foreseeable future. 
C) The average size of the stock price reaction increases with the magnitude of the dividend change,and is larger for dividend cuts. 
D) When managers cut the dividend,it may signal that they have given up hope that earnings will rebound in the near term and need to reduce the dividend to save cash. 
A) Firms adjust dividends relatively infrequently,and dividends are much less volatile than earnings.This practice of maintaining relatively constant dividends is called dividend signaling. 
B) When a firm increases its dividend,it sends a positive signal to investors that management expects to be able to afford the higher dividend for the foreseeable future. 
C) The average size of the stock price reaction increases with the magnitude of the dividend change,and is larger for dividend cuts. 
D) When managers cut the dividend,it may signal that they have given up hope that earnings will rebound in the near term and need to reduce the dividend to save cash.

Question 14

Consider the following equation:
Pcum - Pex = Div ×  
The term Pcum is:

Accepted Answer

A) the personal tax rate for capital gains. 
B) the price per share after a dividend is paid. 
C) the price per share before a dividend is paid. 
D) the personal tax rate for dividend. 
A) the personal tax rate for capital gains. 
B) the price per share after a dividend is paid. 
C) the price per share before a dividend is paid. 
D) the personal tax rate for dividend.

Question 15

Use the information for the question(s)below.
Luther Industries has $5 million in excess cash and 1 million shares outstanding.Luther is considering investing the cash in one-year treasury bills that are currently paying 5% interest,and then using the cash to pay a dividend next year.Alternatively,Luther can pay the cash out as a dividend immediately and the shareholders can invest in the treasury bills themselves.Assume that capital markets are perfect.
-If Luther invests the excess cash in treasury bills,then the dividend per share next year will be closest to:

Accepted Answer

A) $5.00 
B) $5.25 
C) $4.75 
D) $1.05 
A) $5.00 
B) $5.25 
C) $4.75 
D) $1.05

Question 16

Delta Products has decided to spin-off one of its subsidiaries,Gamma Technologies.Each Delta shareholder will receive 0.125 shares of Gamma for each share of Delta they own.Delta's price is $35.00 cum-dividend and immediately after the spin-off Gamma Technologies was trading for $24.00 per share.In a perfect capital market,what would Delta Product's ex-dividend share price be after this transaction?

Accepted Answer

The value of the special divid

Question 17

Assume that Omicron uses the entire $50 million to repurchase shares.The amount of the regular yearly dividends in the future is closest to:

Accepted Answer

A) $9.00 
B) $5.00 
C) $4.50 
D) $4.00 
A) $9.00 
B) $5.00 
C) $4.50 
D) $4.00

Question 18

Use the information for the question(s)below.
Rockwood Industries has 100 million shares outstanding,a current share price of $25,and no debt.Rockwood's management believes that the shares are under-priced,and that the true value is $30 per share.Rockwood plans to pay $250 million in cash to its shareholders by repurchasing shares.Management expects that very soon new information will come out that will cause investors to revise their opinion of the firm and agree with Rockwood's assessment of the firm's true value.
-If Rockwood is able to repurchase shares prior to the market becoming aware of the new information regarding Rockwood's true value,then the number of shares outstanding following the repurchase is closest to:

Accepted Answer

A) 92 million 
B) 10 million 
C) 75 million 
D) 90 million 
A) 92 million 
B) 10 million 
C) 75 million 
D) 90 million

Question 19

Assuming Luther issues a 5:2 stock split,then the number of shares Luther will have outstanding following the split is closest to:

Accepted Answer

A) 25.0 million 
B) 12.5 million 
C) 2.0 million 
D) 16.0 million 
A) 25.0 million 
B) 12.5 million 
C) 2.0 million 
D) 16.0 million

Question 20

Use the following information to answer the question(s)below.  
-The effective dividend tax rate in 1989 is closest to:

Accepted Answer

A) 0% 
B) 20% 
C) 25% 
D) 30% 
A) 0% 
B) 20% 
C) 25% 
D) 30%

Exam 17: Payout Policy

Which of the following statements is FALSE?

Which of the following statements is FALSE?

The price per share of Iota if they decide not to use the $200 million to expand and hold the cash instead is closest to:

If Luther decides to pay the dividend immediately the dividend per share will be closest to:

Net of capital gains taxes,the amount the total value of d'Anconia Copper shares increase is closest to:

The effective dividend tax rate in 1999 is closest to:

Which of the following statements is FALSE?

Net of ordinary income taxes,the amount that investors would have if they invested the $200 million on their own is closest to:

The effective dividend tax rate for a pension fund in 1999 is closest to:

The effective dividend tax rate for a one-year individual investor in 2006 is closest to:

Assuming Luther issues a 5:2 stock split,then Luther's new share price is closest to:

A firm can repurchase shares through a(n)________ in which it offers to buy shares at a prespecified price during a short time period-generally within 20 days.

Which of the following statements is FALSE?

Consider the following equation: Pcum - Pex = Div × The term Pcum is:

Assume that Omicron uses the entire $50 million to repurchase shares.The amount of the regular yearly dividends in the future is closest to:

Assuming Luther issues a 5:2 stock split,then the number of shares Luther will have outstanding following the split is closest to:

Use the following information to answer the question(s)below. -The effective dividend tax rate in 1989 is closest to:

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Financial Options

Option Valuation

Real Options

Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

Filters

Consider the following equation: P_cum - P_ex= Div × The term P_cum is: