Question 1

The market rewards firms that adopt a fixed or increasing level of dividends rather than a fixed dividend payout policy through higher share prices.

Accepted Answer

A) True 
 B)False

Question 2

The shareholder receiving a stock dividend receives a share of common stock of equal value to their existing shares of common stock.

Accepted Answer

A) True 
 B)False

Question 3

Clientele effect is the argument that a firm attracts shareholders whose preferences with respect to the payment and stability of dividends corresponds to the payment pattern and stability of the firm itself.

Accepted Answer

A) True 
 B)False

Question 4

Gordon's "bird-in-the-hand" argument suggests that ________.

Accepted Answer

A)  dividends are irrelevant 
B)  firms should have a 100 percent payout policy 
C)  shareholders are risk averse and attach less risk to current dividends 
D)  the market value of a firm is unaffected by dividend policy 
A)  dividends are irrelevant 
B)  firms should have a 100 percent payout policy 
C)  shareholders are risk averse and attach less risk to current dividends 
D)  the market value of a firm is unaffected by dividend policy

Question 5

Hayley's Optical has a stockholders' equity account as shown below. The firm's common stock currently sells for $20 per share.   (a) What is the maximum dividend per share Hayley's Optical can pay? (Assume capital includes all paid-in capital.)
(b) Recast the partial balance sheet (the stockholders' equity accounts) to show independently
(1) a 2-for-1 stock split of the common stock.
(2) a cash dividend of $1.50 per share.
(3) a stock dividend of 5% on the common stock.
(c) At what price would you expect Hayley's Optical stock to sell after
(1) the stock split?
(2) the stock dividend?

Accepted Answer

(a) The maximum dividend per share the f

Question 6

Regularly paying a fixed or increasing dividend eliminates uncertainty about the frequency and magnitude of dividends.

Accepted Answer

A) True 
 B)False

Question 7

A constant-payout-ratio dividend policy is based on the payment of a certain percentage of earnings to owners in each dividend period.

Accepted Answer

A) True 
 B)False

Question 8

Ignoring general market fluctuations, the stock's price would be expected to drop by the amount of the declared dividend on the ex dividend date.

Accepted Answer

A) True 
 B)False

Question 9

Legal capital refers to ________.

Accepted Answer

A)  a legal constraint imposed by lenders of a firm to maintain a certain level of debt to equity ratio and capital 
B)  capital impairment restrictions are generally established to provide a sufficient equity base to protect creditors' claims 
C)  the capital which is typically measured by the retained earnings 
D)  the capital which is typically measured by net income 
A)  a legal constraint imposed by lenders of a firm to maintain a certain level of debt to equity ratio and capital 
B)  capital impairment restrictions are generally established to provide a sufficient equity base to protect creditors' claims 
C)  the capital which is typically measured by the retained earnings 
D)  the capital which is typically measured by net income

Question 10

The dividend payment date is set by a firm's board of directors and represents the actual date on which the firm mails the dividend payment to the holders of record.

Accepted Answer

A) True 
 B)False

Question 11

Modigliani and Miller argue that when a firm has no acceptable investment opportunities, it should ________.

Accepted Answer

A)  preserve the funds and not declare dividends 
B)  distribute the surplus funds to the owners 
C)  lower its cost of capital 
D)  retain the funds until an acceptable project arises 
A)  preserve the funds and not declare dividends 
B)  distribute the surplus funds to the owners 
C)  lower its cost of capital 
D)  retain the funds until an acceptable project arises

Question 12

After the stock dividend is paid, the per share value of a stockholder's stock will remain the same as the value before the stock dividend and, thus, the market value of his or her total holdings in the firm will remain unchanged.

Accepted Answer

A) True 
 B)False

Question 13

A firm has had the following earnings history over the last five years:   If the firm's dividend policy is based on a $0.50 payout per share whenever it makes a positive earnings, increasing by $0.05 to previous year dividends per share whenever earnings exceed $1.50 per share, the annual dividends for 2014 and 2015 were ________.

Accepted Answer

A)  $0.50 and $0.60, respectively 
B)  $0.50 and $0.55, respectively 
C)  $0.55 and $0.65, respectively 
D)  $0.60 and $0.65, respectively 
A)  $0.50 and $0.60, respectively 
B)  $0.50 and $0.55, respectively 
C)  $0.55 and $0.65, respectively 
D)  $0.60 and $0.65, respectively

Question 14

According to the catering theory, firms cater to the preferences of ________.

Accepted Answer

A)  investors 
B)  creditors 
C)  managers 
D)  government 
A)  investors 
B)  creditors 
C)  managers 
D)  government

Question 15

In most states, legal capital is measured not only by the par value and paid-in capital in excess of par, but also by any accumulated retained earnings.

Accepted Answer

A) True 
 B)False

Question 16

Tangshan Mining has 100,000 shares outstanding and just declared a 2-for-1 stock split. Before the announcement, the firm's shares were trading at $50.00 per share. After the stock split, the firm's shares should trade at ________ per share.

Accepted Answer

A)  $100.00 
B)  $25.00 
C)  $50.00 
D)  $75.00 
A)  $100.00 
B)  $25.00 
C)  $50.00 
D)  $75.00

Question 17

The advantage of using the extra dividend policy is that ________.

Accepted Answer

A)  a firm can avoid giving false hopes to shareholders 
B)  if a firm's earnings drop, so does the dividend payment 
C)  the extra dividend may become a regular event 
D)  cyclical shifts in earnings may be avoided 
A)  a firm can avoid giving false hopes to shareholders 
B)  if a firm's earnings drop, so does the dividend payment 
C)  the extra dividend may become a regular event 
D)  cyclical shifts in earnings may be avoided

Question 18

The residual theory of dividends suggests that ________.

Accepted Answer

A)  different payout policies attract different types of investors but still do not change the value of a firm 
B)  dividends are irrelevant in determining the value of a firm 
C)  as long as a firm's equity need exceeds the amount of retained earnings, no cash dividend is paid 
D)  the payout policies of different firms have no impact on the taxes that investors have to pay 
A)  different payout policies attract different types of investors but still do not change the value of a firm 
B)  dividends are irrelevant in determining the value of a firm 
C)  as long as a firm's equity need exceeds the amount of retained earnings, no cash dividend is paid 
D)  the payout policies of different firms have no impact on the taxes that investors have to pay

Question 19

According to the residual theory of dividends, if a firm's equity need exceeds the amount of retained earnings, the firm would ________.

Accepted Answer

A)  borrow to pay the cash dividend 
B)  sell additional stock to pay the cash dividend 
C)  pay no cash dividends 
D)  pay less dividends 
A)  borrow to pay the cash dividend 
B)  sell additional stock to pay the cash dividend 
C)  pay no cash dividends 
D)  pay less dividends

Question 20

A shareholder receiving a stock dividend typically receives nothing of value.

Accepted Answer

A) True 
 B)False

The market rewards firms that adopt a fixed or increasing level of dividends rather than a fixed dividend payout policy through higher share prices.

The shareholder receiving a stock dividend receives a share of common stock of equal value to their existing shares of common stock.

Clientele effect is the argument that a firm attracts shareholders whose preferences with respect to the payment and stability of dividends corresponds to the payment pattern and stability of the firm itself.

Gordon's "bird-in-the-hand" argument suggests that ________.

Regularly paying a fixed or increasing dividend eliminates uncertainty about the frequency and magnitude of dividends.

A constant-payout-ratio dividend policy is based on the payment of a certain percentage of earnings to owners in each dividend period.

Ignoring general market fluctuations, the stock's price would be expected to drop by the amount of the declared dividend on the ex dividend date.

Legal capital refers to ________.

The dividend payment date is set by a firm's board of directors and represents the actual date on which the firm mails the dividend payment to the holders of record.

Modigliani and Miller argue that when a firm has no acceptable investment opportunities, it should ________.

After the stock dividend is paid, the per share value of a stockholder's stock will remain the same as the value before the stock dividend and, thus, the market value of his or her total holdings in the firm will remain unchanged.

According to the catering theory, firms cater to the preferences of ________.

In most states, legal capital is measured not only by the par value and paid-in capital in excess of par, but also by any accumulated retained earnings.

Tangshan Mining has 100,000 shares outstanding and just declared a 2-for-1 stock split. Before the announcement, the firm's shares were trading at $50.00 per share. After the stock split, the firm's shares should trade at ________ per share.

The advantage of using the extra dividend policy is that ________.

The residual theory of dividends suggests that ________.

According to the residual theory of dividends, if a firm's equity need exceeds the amount of retained earnings, the firm would ________.

A shareholder receiving a stock dividend typically receives nothing of value.

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

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Exam 14: Payout Policy

The market rewards firms that adopt a fixed or increasing level of dividends rather than a fixed dividend payout policy through higher share prices.

The shareholder receiving a stock dividend receives a share of common stock of equal value to their existing shares of common stock.

Clientele effect is the argument that a firm attracts shareholders whose preferences with respect to the payment and stability of dividends corresponds to the payment pattern and stability of the firm itself.

Gordon's "bird-in-the-hand" argument suggests that ________.

Regularly paying a fixed or increasing dividend eliminates uncertainty about the frequency and magnitude of dividends.

A constant-payout-ratio dividend policy is based on the payment of a certain percentage of earnings to owners in each dividend period.

Ignoring general market fluctuations, the stock's price would be expected to drop by the amount of the declared dividend on the ex dividend date.

Legal capital refers to ________.

The dividend payment date is set by a firm's board of directors and represents the actual date on which the firm mails the dividend payment to the holders of record.

Modigliani and Miller argue that when a firm has no acceptable investment opportunities, it should ________.

After the stock dividend is paid, the per share value of a stockholder's stock will remain the same as the value before the stock dividend and, thus, the market value of his or her total holdings in the firm will remain unchanged.

According to the catering theory, firms cater to the preferences of ________.

In most states, legal capital is measured not only by the par value and paid-in capital in excess of par, but also by any accumulated retained earnings.

Tangshan Mining has 100,000 shares outstanding and just declared a 2-for-1 stock split. Before the announcement, the firm's shares were trading at $50.00 per share. After the stock split, the firm's shares should trade at ________ per share.

The advantage of using the extra dividend policy is that ________.

The residual theory of dividends suggests that ________.

According to the residual theory of dividends, if a firm's equity need exceeds the amount of retained earnings, the firm would ________.

A shareholder receiving a stock dividend typically receives nothing of value.

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters