Question 1

From a tax-paying investor's point of view,a stock repurchase:

Accepted Answer

A) is equivalent to a cash dividend. 
B) is more desirable than a cash dividend. 
C) has the same tax effects as a cash dividend. 
D) is more highly taxed than a cash dividend. 
E) creates a tax liability even if the investor does not sell any of the shares he owns. 
A) is equivalent to a cash dividend. 
B) is more desirable than a cash dividend. 
C) has the same tax effects as a cash dividend. 
D) is more highly taxed than a cash dividend. 
E) creates a tax liability even if the investor does not sell any of the shares he owns. B

Question 2

Allison's has a market value equal to its book value.Currently,the firm has excess cash of $1,100 and other assets of $12,400.Equity is worth $13,500.The firm has 2,500 shares of stock outstanding and net income of $10,800.What will be the new earnings per share if the firm uses its excess cash to complete a stock repurchase?

Accepted Answer

A) $4.32 
B) $4.50 
C) $4.82 
D) $4.70 
E) $4.40 
A) $4.32 
B) $4.50 
C) $4.82 
D) $4.70 
E) $4.40 D

Question 3

The market's reaction to the announcement of a change in the firm's dividend payout is referred to as the:

Accepted Answer

A) information content effect. 
B) clientele effect. 
C) efficient markets hypothesis. 
D) MM Proposition I. 
E) MM Proposition II. 
A) information content effect. 
B) clientele effect. 
C) efficient markets hypothesis. 
D) MM Proposition I. 
E) MM Proposition II. A

Question 4

A change in dividend policy does not affect the value of a share of stock as long as:

Accepted Answer

A) the dividend payout ratio remains constant. 
B) all future dividends are changed by the same amount. 
C) all the distributable cash flow is paid out. 
D) there is an offsetting change in stock repurchases. 
E) shareholders are given ample warning. 
A) the dividend payout ratio remains constant. 
B) all future dividends are changed by the same amount. 
C) all the distributable cash flow is paid out. 
D) there is an offsetting change in stock repurchases. 
E) shareholders are given ample warning.

Question 5

It has been shown that in the absence of taxes and other market imperfections firm value will be unaffected by dividend policy.Explain the logic behind this conclusion.

Accepted Answer

Dividend policy is considered irrelevant

Question 6

Explain why an ex-dividend date is a required step in the dividend payout process.

Accepted Answer

Dividends are paid to the holders of rec

Question 7

Edie's Health Supply has 125,000 shares of stock outstanding with a par value of $1 per share and a market value of $5 a share.The company has retained earnings of $76,500 and capital in excess of par of $340,000.The company just announced a 1-for-5 reverse stock split.What will be the par value per share after the split?

Accepted Answer

A) $.20 
B) $.25 
C) $2.50 
D) $5.00 
E) $10.00 
A) $.20 
B) $.25 
C) $2.50 
D) $5.00 
E) $10.00

Question 8

All else equal,a stock dividend will ________ the number of shares outstanding and ________ the value per share.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) not change; increase 
D) decrease; increase 
E) decrease; decrease 
A) increase; increase 
B) increase; decrease 
C) not change; increase 
D) decrease; increase 
E) decrease; decrease

Question 9

On May 18th,you purchased 1,000 shares of Buy Lo stock.On June 5th,you sold 200 shares of this stock for $21 a share.You sold an additional 400 shares on July 8th at a price of $22.50 a share.The company declared a $.50 per share dividend on June 25th to holders of record as of Thursday,July 10th.This dividend is payable on July 31st.How much dividend income will you receive on July 31st as a result of your ownership of this firm's stock?

Accepted Answer

A) $100 
B) $200 
C) $300 
D) $400 
E) $500 
A) $100 
B) $200 
C) $300 
D) $400 
E) $500

Question 10

The dividend-irrelevance proposition of Miller and Modigliani depends on which one of the following relationships between investment policy and dividend policy?

Accepted Answer

A) The level of investment does not influence or matter to the dividend decision. 
B) Once dividend policy is set the investment decision can be made. 
C) The investment policy is set ahead of time and not altered by changes in dividend policy. 
D) Since dividend policy is irrelevant there is no relationship between investment policy and dividend policy. 
E) Miller and Modigliani were only concerned about capital structure. 
A) The level of investment does not influence or matter to the dividend decision. 
B) Once dividend policy is set the investment decision can be made. 
C) The investment policy is set ahead of time and not altered by changes in dividend policy. 
D) Since dividend policy is irrelevant there is no relationship between investment policy and dividend policy. 
E) Miller and Modigliani were only concerned about capital structure.

Question 11

Which one of the following lists dividend events in the correct chronological order from earliest to latest?

Accepted Answer

A) Date of record,declaration date,ex-dividend date 
B) Date of record,ex-dividend date,declaration date 
C) Declaration date,date of record,ex-dividend date 
D) Declaration date,ex-dividend date,date of record 
E) Ex-dividend date,date of record,declaration date 
A) Date of record,declaration date,ex-dividend date 
B) Date of record,ex-dividend date,declaration date 
C) Declaration date,date of record,ex-dividend date 
D) Declaration date,ex-dividend date,date of record 
E) Ex-dividend date,date of record,declaration date

Question 12

Assume Downtown Markets latest balance sheet shows $15,000 in the common stock account,$315,000 in the capital in excess of par account,and $189,000 in the retained earnings account.What will be the capital in excess of par account value if the firm does a 5-for-3 stock split?

Accepted Answer

A) $126,000 
B) $210,000 
C) $283,500 
D) $315,000 
E) $472,500 
A) $126,000 
B) $210,000 
C) $283,500 
D) $315,000 
E) $472,500

Question 13

The Rent It Company declared a dividend of $.60 a share on October 20th to holders of record on Monday,November 1st.The dividend is payable on December 1st.You purchased 100 shares of this stock on Wednesday,October 27th.How much dividend income will you receive on December 1st as a result of this declaration?

Accepted Answer

A) $0 
B) $1.50 
C) $6.00 
D) $15.00 
E) $60.00 
A) $0 
B) $1.50 
C) $6.00 
D) $15.00 
E) $60.00

Question 14

The date on which a firm actually distributes its declared dividend is called the:

Accepted Answer

A) ex-rights date. 
B) ex-dividend date. 
C) date of record. 
D) date of payment. 
E) declaration date. 
A) ex-rights date. 
B) ex-dividend date. 
C) date of record. 
D) date of payment. 
E) declaration date.

Question 15

Explain the general characteristics of a tender offer.

Accepted Answer

In a tender offer,the firm announces bot

Question 16

A firm has a market value equal to its book value,excess cash of $1,000,and equity worth $17,800.The firm has 5,000 shares of stock outstanding and net income of $31,200.What will be the new earnings per share if the firm uses its excess cash to complete a stock repurchase?

Accepted Answer

A) $7.20 
B) $6.50 
C) $6.61 
D) $5.89 
E) $6.23 
A) $7.20 
B) $6.50 
C) $6.61 
D) $5.89 
E) $6.23

Question 17

Which one of these is a characteristic of a sensible payout policy?

Accepted Answer

A) Over time pay out half of all free cash flows 
B) Set the current regular dividend consistent with a 100 percent payout ratio 
C) Increase regular dividends to distribute transitory cash flow increases 
D) Set the dividends high even if it means acquiring expensive external financing 
E) Avoid rejecting positive NPV projects to increase dividends or buyback shares 
A) Over time pay out half of all free cash flows 
B) Set the current regular dividend consistent with a 100 percent payout ratio 
C) Increase regular dividends to distribute transitory cash flow increases 
D) Set the dividends high even if it means acquiring expensive external financing 
E) Avoid rejecting positive NPV projects to increase dividends or buyback shares

Question 18

The date before which a purchaser of stock is entitled to receive a declared dividend,but on or after that date they cannot,is called the ________ date.

Accepted Answer

A) ex-rights 
B) ex-dividend 
C) record 
D) payment 
E) declaration 
A) ex-rights 
B) ex-dividend 
C) record 
D) payment 
E) declaration

Question 19

Of the following factors,which one is considered to be the primary factor affecting a firm's dividend payout decision?

Accepted Answer

A) Considering the personal taxes of company stockholders 
B) Maintaining a consistent dividend policy 
C) Attracting retail investors 
D) Attracting institutional investors 
E) Avoiding flotation costs 
A) Considering the personal taxes of company stockholders 
B) Maintaining a consistent dividend policy 
C) Attracting retail investors 
D) Attracting institutional investors 
E) Avoiding flotation costs

Question 20

The date on which the board of directors passes a resolution authorizing payment of a dividend to the shareholders is the ________ date.

Accepted Answer

A) ex-rights 
B) ex-dividend 
C) record 
D) payment 
E) declaration 
A) ex-rights 
B) ex-dividend 
C) record 
D) payment 
E) declaration

Exam 19: Dividends and Other Payouts

From a tax-paying investor's point of view,a stock repurchase:

The market's reaction to the announcement of a change in the firm's dividend payout is referred to as the:

A change in dividend policy does not affect the value of a share of stock as long as:

It has been shown that in the absence of taxes and other market imperfections firm value will be unaffected by dividend policy.Explain the logic behind this conclusion.

Explain why an ex-dividend date is a required step in the dividend payout process.

All else equal,a stock dividend will ________ the number of shares outstanding and ________ the value per share.

The dividend-irrelevance proposition of Miller and Modigliani depends on which one of the following relationships between investment policy and dividend policy?

Which one of the following lists dividend events in the correct chronological order from earliest to latest?

Assume Downtown Markets latest balance sheet shows $15,000 in the common stock account,$315,000 in the capital in excess of par account,and $189,000 in the retained earnings account.What will be the capital in excess of par account value if the firm does a 5-for-3 stock split?

The date on which a firm actually distributes its declared dividend is called the:

Explain the general characteristics of a tender offer.

A firm has a market value equal to its book value,excess cash of $1,000,and equity worth $17,800.The firm has 5,000 shares of stock outstanding and net income of $31,200.What will be the new earnings per share if the firm uses its excess cash to complete a stock repurchase?

Which one of these is a characteristic of a sensible payout policy?

The date before which a purchaser of stock is entitled to receive a declared dividend,but on or after that date they cannot,is called the ________ date.

Of the following factors,which one is considered to be the primary factor affecting a firm's dividend payout decision?

The date on which the board of directors passes a resolution authorizing payment of a dividend to the shareholders is the ________ date.

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

Filters

All else equal,a stock dividend will the number of shares outstanding and the value per share.