Question 1

A firm issues a 75% stock dividend.This transaction is equivalent to a:

Accepted Answer

A) 3:2 stock split. 
B) 4:3 stock split 
C) 7:4 stock split 
D) 3:4 stock split 
E) 1:1 stock split 
A) 3:2 stock split. 
B) 4:3 stock split 
C) 7:4 stock split 
D) 3:4 stock split 
E) 1:1 stock split C

Question 2

A firm has $300 million of assets that includes $50 million of cash and 10 million shares outstanding.The firm uses $30 million of its cash to pay dividends.If an investor has 1000 shares,how many shares must he sell to create a homemade dividend of $3900?

Accepted Answer

A) 33.3 shares 
B) 40.2 shares 
C) 50.5 shares 
D) 60.3 shares 
E) 65.6 shares 
A) 33.3 shares 
B) 40.2 shares 
C) 50.5 shares 
D) 60.3 shares 
E) 65.6 shares A

Question 3

Long-term investors can defer capital gains tax until they sell and,therefore,there is a tax advantage for share repurchases over dividends.

Accepted Answer

A) True 
 B)False  True

Question 4

Fireball Furnaces is an all-equity firm with 50 million shares outstanding.Fireball has $10 million in cash,and expects future free cash flows of $2 million per year.The cash can be used to expand the firm's future operations,increasing future free cash flows to $3.5 million per year.If Fireball's cost of capital for the expansion is 7%,what will be the difference in the firm's share price compared to using the cash for a share repurchase?

Accepted Answer

A) Share price is $0.43 higher with expansion. 
B) Share price is $0.43 higher with repurchase. 
C) Share price is the same with both options. 
D) Share price is $0.23 higher with expansion. 
E) Share price is $0.23 higher with repurchase. 
A) Share price is $0.43 higher with expansion. 
B) Share price is $0.43 higher with repurchase. 
C) Share price is the same with both options. 
D) Share price is $0.23 higher with expansion. 
E) Share price is $0.23 higher with repurchase.

Question 5

A(n)________ is the most common way that firms repurchase shares.

Accepted Answer

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

Question 6

In a stock split or stock dividend,the company issues additional shares rather than cash to its shareholders.

Accepted Answer

A) True 
 B)False

Question 7

When a firm purchases shares directly from a major shareholder it is also known as a(n):

Accepted Answer

A) open market purchase. 
B) tender offer. 
C) targeted repurchase. 
D) greenmail. 
E) Dutch auction. 
A) open market purchase. 
B) tender offer. 
C) targeted repurchase. 
D) greenmail. 
E) Dutch auction.

Question 8

The WTC Corporation will pay a constant dividend of $3.20 per share,per year,in perpetuity.If all investors pay a 15% tax on dividends,there is no capital gains tax,and the cost of capital for investing in WTC stock is 9%,what is the price for a share of WTC stock?

Accepted Answer

A) $30.22 
B) $26.67 
C) $18.77 
D) $16.45 
E) $15.76 
A) $30.22 
B) $26.67 
C) $18.77 
D) $16.45 
E) $15.76

Question 9

The price of a share of JRN's stock is closest to:

Accepted Answer

A) $20.00 
B) $24.00 
C) $25.00 
D) $18.00 
E) $26.00 
A) $20.00 
B) $24.00 
C) $25.00 
D) $18.00 
E) $26.00

Question 10

What is the difference between a regular dividend and a liquidating dividend?

Accepted Answer

A regular dividend comes from

Question 11

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 
E) $4.50 
A) $5.00 
B) $5.25 
C) $4.75 
D) $1.05 
E) $4.50

Question 12

The Record Date falls before the Ex-Dividend Date.

Accepted Answer

A) True 
 B)False

Question 13

A(n)________ may occur if a major shareholder desires to sell a large number of shares but the market for the shares is not sufficiently liquid to sustain such a large sale without severely affecting the price.

Accepted Answer

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

Question 14

What are the characteristics of special dividend?

Accepted Answer

Special dividends are occasion

Question 15

Why might a firm choose a spinoff instead of selling a division and distributing the cash?

Accepted Answer

A spinoff avoids the transacti

Question 16

A firm has $500 million of assets that includes $50 million of cash and 10 million shares outstanding.The firm uses $50 million of its cash to pay dividends.If an investor has 1000 shares,how many shares must he sell to create a homemade dividend of $6575?

Accepted Answer

A) 25 shares 
B) 30 shares 
C) 35 shares 
D) 40 shares 
E) 45 shares 
A) 25 shares 
B) 30 shares 
C) 35 shares 
D) 40 shares 
E) 45 shares

Question 17

What is the sequence of the four important dates for a dividend payment,from initial authorization to final payment?

Accepted Answer

The declaration date

Question 18

Why do firms still pay dividends,despite their tax disadvantage?

Accepted Answer

Investors have different tax rates and t

Question 19

Repurchases and special dividends are useful for making ________ and ________ distributions to shareholders.

Accepted Answer

A) small,frequent 
B) small,infrequent 
C) large,infrequent 
D) large,frequent 
E) medium,frequent 
A) small,frequent 
B) small,infrequent 
C) large,infrequent 
D) large,frequent 
E) medium,frequent

Question 20

Use the information for the question(s)below.
Consider the following tax rates:
  
-In 2006,Luther Incorporated paid a special dividend of $5 per share for the 1 million shares outstanding.If Luther has instead retained that cash permanently and invested it into Treasury bills earning 6%,then the present value (PV)of the additional taxes paid by Luther would be closest to:

Accepted Answer

A) $.35 million 
B) $2.90 million 
C) $1.75 million 
D) $5.85 million 
E) $3.25 million 
A) $.35 million 
B) $2.90 million 
C) $1.75 million 
D) $5.85 million 
E) $3.25 million

Exam 17: Payout Policy

A firm issues a 75% stock dividend.This transaction is equivalent to a:

A firm has $300 million of assets that includes $50 million of cash and 10 million shares outstanding.The firm uses $30 million of its cash to pay dividends.If an investor has 1000 shares,how many shares must he sell to create a homemade dividend of $3900?

Long-term investors can defer capital gains tax until they sell and,therefore,there is a tax advantage for share repurchases over dividends.

A(n)________ is the most common way that firms repurchase shares.

In a stock split or stock dividend,the company issues additional shares rather than cash to its shareholders.

When a firm purchases shares directly from a major shareholder it is also known as a(n):

The WTC Corporation will pay a constant dividend of $3.20 per share,per year,in perpetuity.If all investors pay a 15% tax on dividends,there is no capital gains tax,and the cost of capital for investing in WTC stock is 9%,what is the price for a share of WTC stock?

The price of a share of JRN's stock is closest to:

What is the difference between a regular dividend and a liquidating dividend?

If Luther invests the excess cash in Treasury bills,then the dividend per share next year will be closest to:

The Record Date falls before the Ex-Dividend Date.

A(n)________ may occur if a major shareholder desires to sell a large number of shares but the market for the shares is not sufficiently liquid to sustain such a large sale without severely affecting the price.

What are the characteristics of special dividend?

Why might a firm choose a spinoff instead of selling a division and distributing the cash?

A firm has $500 million of assets that includes $50 million of cash and 10 million shares outstanding.The firm uses $50 million of its cash to pay dividends.If an investor has 1000 shares,how many shares must he sell to create a homemade dividend of $6575?

What is the sequence of the four important dates for a dividend payment,from initial authorization to final payment?

Why do firms still pay dividends,despite their tax disadvantage?

Repurchases and special dividends are useful for making ________ and ________ distributions to shareholders.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters

Repurchases and special dividends are useful for making and distributions to shareholders.