Question 1

The idea that dividend changes reflect managers' views about a firm's future earnings prospects is called the ________ hypothesis.

Accepted Answer

A) signalling 
B) predictor 
C) instrumental 
D) pecking order 
E) dividend growth 
A) signalling 
B) predictor 
C) instrumental 
D) pecking order 
E) dividend growth

Question 2

The date on which a firm pays out dividends is called the ________ date.

Accepted Answer

A) declaration 
B) record 
C) ex-dividend 
D) distribution 
E) dividend 
A) declaration 
B) record 
C) ex-dividend 
D) distribution 
E) dividend

Question 3

An alternate way to pay investors is when the firm uses cash to buy shares of its own outstanding stock,also known as:

Accepted Answer

A) dividend investment. 
B) retained earnings. 
C) initial public offering. 
D) share repurchases. 
E) seasoned equity offering. 
A) dividend investment. 
B) retained earnings. 
C) initial public offering. 
D) share repurchases. 
E) seasoned equity offering.

Question 4

Which of the following is an advantage of a spin-off versus selling a subsidiary and distributing the cash?

Accepted Answer

A) A spin-off increases the transaction costs associated with selling the subsidiary. 
B) Shareholders must immediately pay capital gains taxes versus ordinary income taxes on the value of the spin-off. 
C) A spin-off guarantees a lower cost of capital. 
D) The spin-off is not taxed as a cash distribution. 
E) A spin-off results in a higher price for the subsidiary. 
A) A spin-off increases the transaction costs associated with selling the subsidiary. 
B) Shareholders must immediately pay capital gains taxes versus ordinary income taxes on the value of the spin-off. 
C) A spin-off guarantees a lower cost of capital. 
D) The spin-off is not taxed as a cash distribution. 
E) A spin-off results in a higher price for the subsidiary.

Question 5

When a firm retains cash,it pays corporate tax on the interest it earns and the investor will owe capital gains tax on the increased firm value-in essence the interest on retained cash is taxed:

Accepted Answer

A) once. 
B) at a rate of zero. 
C) twice. 
D) only at the corporate level. 
E) only at the investor level. 
A) once. 
B) at a rate of zero. 
C) twice. 
D) only at the corporate level. 
E) only at the investor level.

Question 6

Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.The amount of the regular yearly dividends in the future is closest to:

Accepted Answer

A) $4.50 
B) $5.00 
C) $4.00 
D) $9.00 
E) $3.00 
A) $4.50 
B) $5.00 
C) $4.00 
D) $9.00 
E) $3.00

Question 7

What is the bird-in-the-hand fallacy in dividend theory under perfect capital markets?

Accepted Answer

According to Modigliani and Miller,under

Question 8

The typical reason for a stock split is to:

Accepted Answer

A) allow for growth in the company assets. 
B) allow liabilities to grow. 
C) increase earnings per share. 
D) keep the share price in a range. 
E) increase the share price. 
A) allow for growth in the company assets. 
B) allow liabilities to grow. 
C) increase earnings per share. 
D) keep the share price in a range. 
E) increase the share price.

Question 9

Assume that Omicron uses the entire $50 million to repurchase shares.The number of shares that Omicron will have outstanding following the repurchase is closest to:

Accepted Answer

A) 8.8 million 
B) 1.2 million 
C) 9.0 million 
D) 8.9 million 
E) 7.8 million 
A) 8.8 million 
B) 1.2 million 
C) 9.0 million 
D) 8.9 million 
E) 7.8 million

Question 10

A firm issues a 100% stock dividend.This transaction is equivalent to a:

Accepted Answer

A) 3:2 stock split. 
B) 1:2 stock split 
C) 100:1 stock split 
D) 1:1 stock split 
E) 2:1 stock split 
A) 3:2 stock split. 
B) 1:2 stock split 
C) 100:1 stock split 
D) 1:1 stock split 
E) 2:1 stock split

Question 11

The optimal dividend policy when dividend tax rates exceed capital gains tax rates is to pay dividends only.

Accepted Answer

A) True 
 B)False

Question 12

When a firm pays out a dividend,the share price ________,and when it conducts a share repurchase at the market price,the share price ________.

Accepted Answer

A) increases,increases 
B) is unchanged,decreases 
C) decreases,decreases 
D) decreases,is unchanged 
E) decreases,increases 
A) increases,increases 
B) is unchanged,decreases 
C) decreases,decreases 
D) decreases,is unchanged 
E) decreases,increases

Question 13

A firm issues a 50% stock dividend.This transaction is equivalent to a:

Accepted Answer

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

Question 14

With perfect capital markets,an open market repurchase increases the stock price as the number of outstanding shares is decreased.

Accepted Answer

A) True 
 B)False

Question 15

Because the dividend tax will be paid whether the firm pays cash immediately or retains cash and pays the interest over time,the dividend tax rate does not affect the cost of retaining cash.

Accepted Answer

A) True 
 B)False

Question 16

The firm will pay the dividend to all shareholders of record on a specific date,set by the board,called the ________ date.

Accepted Answer

A) declaration 
B) record 
C) ex-dividend 
D) distribution 
E) payable 
A) declaration 
B) record 
C) ex-dividend 
D) distribution 
E) payable

Question 17

Explain the different effects on a firm's share price for a dividend payment versus a share repurchase.

Accepted Answer

With a dividend payment,the sh

Question 18

Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.The amount of the special dividend is closest to:

Accepted Answer

A) $5.00 
B) $9.00 
C) $4.00 
D) $4.50 
E) $3.00 
A) $5.00 
B) $9.00 
C) $4.00 
D) $4.50 
E) $3.00

Question 19

Palo Alto Enterprises has $200,000 in cash.They wish to invest the money in Treasury bills at 5% and use the returns to pay dividends to shareholders after a year.Alternately they can pay a dividend and allow shareholders to make the investment.In perfect capital markets,which option will shareholders prefer?

Accepted Answer

A) immediate cash dividend 
B) dividend after one year 
C) prefer half from each source 
D) indifferent between options 
E) most paid now,the balance paid in one year 
A) immediate cash dividend 
B) dividend after one year 
C) prefer half from each source 
D) indifferent between options 
E) most paid now,the balance paid in one year

Question 20

The fact that firms continue to issue dividends despite their tax disadvantage is often referred to as the:

Accepted Answer

A) issuance puzzle. 
B) dividend puzzle. 
C) payback puzzle. 
D) policy puzzle. 
E) capital structure puzzle. 
A) issuance puzzle. 
B) dividend puzzle. 
C) payback puzzle. 
D) policy puzzle. 
E) capital structure puzzle.

Exam 17: Payout Policy

The idea that dividend changes reflect managers' views about a firm's future earnings prospects is called the ________ hypothesis.

The date on which a firm pays out dividends is called the ________ date.

An alternate way to pay investors is when the firm uses cash to buy shares of its own outstanding stock,also known as:

Which of the following is an advantage of a spin-off versus selling a subsidiary and distributing the cash?

When a firm retains cash,it pays corporate tax on the interest it earns and the investor will owe capital gains tax on the increased firm value-in essence the interest on retained cash is taxed:

Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.The amount of the regular yearly dividends in the future is closest to:

What is the bird-in-the-hand fallacy in dividend theory under perfect capital markets?

The typical reason for a stock split is to:

Assume that Omicron uses the entire $50 million to repurchase shares.The number of shares that Omicron will have outstanding following the repurchase is closest to:

A firm issues a 100% stock dividend.This transaction is equivalent to a:

The optimal dividend policy when dividend tax rates exceed capital gains tax rates is to pay dividends only.

When a firm pays out a dividend,the share price ________,and when it conducts a share repurchase at the market price,the share price ________.

A firm issues a 50% stock dividend.This transaction is equivalent to a:

With perfect capital markets,an open market repurchase increases the stock price as the number of outstanding shares is decreased.

Because the dividend tax will be paid whether the firm pays cash immediately or retains cash and pays the interest over time,the dividend tax rate does not affect the cost of retaining cash.

The firm will pay the dividend to all shareholders of record on a specific date,set by the board,called the ________ date.

Explain the different effects on a firm's share price for a dividend payment versus a share repurchase.

Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.The amount of the special dividend is closest to:

The fact that firms continue to issue dividends despite their tax disadvantage is often referred to as the:

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

When a firm pays out a dividend,the share price ,and when it conducts a share repurchase at the market price,the share price .