Question 1

Suppose a firm does not pay a dividend but repurchases stock using $20 million of cash.The market value of the firm decreases by:

Accepted Answer

A) $20 million. 
B) -$20 million. 
C) 0. 
D) $40 million. 
E) -$40 million. 
A) $20 million. 
B) -$20 million. 
C) 0. 
D) $40 million. 
E) -$40 million.

Question 2

A firm has assets of $250 million,of which $25 million is cash.It has debt of $100 million.If the firm were to repurchase $10 million of its stock,what would its new debt-to-equity ratio be?

Accepted Answer

A) 71.4% 
B) 28.6% 
C) 80% 
D) 20% 
E) 30% 
A) 71.4% 
B) 28.6% 
C) 80% 
D) 20% 
E) 30%

Question 3

Different investor groups have differing dividend policy preferences that create clientele effects in which dividend policy of a firm is optimized for its investors.

Accepted Answer

A) True 
 B)False

Question 4

A firm has $400 million of assets that includes $50 million of cash and 10 million shares outstanding.The firm uses $40 million of its cash to pay dividends.If an investor has 1000 shares,how many shares must she sell to create a homemade dividend of $4900?

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 5

Why do firms issue stock dividends or split their stock?

Accepted Answer

If the firm's share price rises signific

Question 6

A firm has $200 million of assets that includes $50 million of cash and 8 million shares outstanding.If the firm uses $20 million of its cash to repurchase shares,what is the new price per share?

Accepted Answer

A) $25 
B) $27 
C) $30 
D) $32 
E) $35 
A) $25 
B) $27 
C) $30 
D) $32 
E) $35

Question 7

Omicron's enterprise value is closest to:

Accepted Answer

A) $500 million 
B) $900 million 
C) $450 million 
D) $400 million 
E) $300 million 
A) $500 million 
B) $900 million 
C) $450 million 
D) $400 million 
E) $300 million

Question 8

A firm has $75 million of assets that includes $12 million of cash and 25 million shares outstanding.If the firm uses $12 million of cash to repurchase shares,what is the new price per share?

Accepted Answer

A) $1 
B) $2 
C) $3 
D) $4 
E) $5 
A) $1 
B) $2 
C) $3 
D) $4 
E) $5

Question 9

What are the different ways a firm can repurchase shares?

Accepted Answer

There are three possible ways

Question 10

What is the difference between an open market share repurchase and a targeted repurchase?

Accepted Answer

In an open market repurchase,a

Question 11

In perfect capital markets,buying and selling securities is a zero-NPV transaction,so retaining cash versus paying it out does not affect firm value.

Accepted Answer

A) True 
 B)False

Question 12

When a firm repurchases shares,the supply of shares is ________,but at the same time,the firm's assets ________.

Accepted Answer

A) reduced,decline 
B) increased,decline 
C) reduced,increase 
D) increased,increase 
E) reduced,are unchanged 
A) reduced,decline 
B) increased,decline 
C) reduced,increase 
D) increased,increase 
E) reduced,are unchanged

Question 13

Corporations enjoy a tax advantage associated with dividends due to:

Accepted Answer

A) personal tax exemptions. 
B) the 100% exclusion allowance. 
C) laddered tax rates. 
D) concave tax structure. 
E) tax carryforwards. 
A) personal tax exemptions. 
B) the 100% exclusion allowance. 
C) laddered tax rates. 
D) concave tax structure. 
E) tax carryforwards.

Question 14

Because ________ are seen as an implicit commitment,they send a ________ signal of financial strength to shareholders.

Accepted Answer

A) dividends,strong 
B) dividends,weak 
C) repurchases,strong 
D) repurchases,weak 
E) spin-offs,strong 
A) dividends,strong 
B) dividends,weak 
C) repurchases,strong 
D) repurchases,weak 
E) spin-offs,strong

Question 15

Assume that you own 2500 shares of Omicron stock and that Omicron uses the entire $50 million to repurchase shares.Suppose you are unhappy with Omicron's decision and would prefer that Omicron used the excess cash to pay a special dividend.The number of shares that you would have to sell in order to receive the same amount of cash as if Omicron paid the special dividend is closest to:

Accepted Answer

A) 275 
B) 310 
C) 125 
D) 250 
E) 175 
A) 275 
B) 310 
C) 125 
D) 250 
E) 175

Question 16

A firm has $300 million of assets that includes $50 million of cash and 10 million shares outstanding.If the firm uses $30 million of its cash to repurchase shares,what is the new price per share?

Accepted Answer

A) $25 
B) $27 
C) $30 
D) $32 
E) $35 
A) $25 
B) $27 
C) $30 
D) $32 
E) $35

Question 17

Firms may retain large amounts of cash to cover future potential needs that allows a firm to avoid:

Accepted Answer

A) transaction costs and financial distress costs. 
B) tax payments. 
C) clientele effects. 
D) agency costs. 
E) share price reductions. 
A) transaction costs and financial distress costs. 
B) tax payments. 
C) clientele effects. 
D) agency costs. 
E) share price reductions.

Question 18

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

Accepted Answer

A) 1.0 million 
B) 1.2 million 
C) 1.1 million 
D) 0.9 million 
E) 1.5 million 
A) 1.0 million 
B) 1.2 million 
C) 1.1 million 
D) 0.9 million 
E) 1.5 million

Question 19

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

Question 20

Dividend payments that are the result of liquidation of assets are known as ________ and are taxed as capital gains.

Accepted Answer

A) return of capital 
B) rolling dividends 
C) alternate payments 
D) private earnings 
E) special dividends 
A) return of capital 
B) rolling dividends 
C) alternate payments 
D) private earnings 
E) special dividends

Exam 17: Payout Policy

Suppose a firm does not pay a dividend but repurchases stock using $20 million of cash.The market value of the firm decreases by:

A firm has assets of $250 million,of which $25 million is cash.It has debt of $100 million.If the firm were to repurchase $10 million of its stock,what would its new debt-to-equity ratio be?

Different investor groups have differing dividend policy preferences that create clientele effects in which dividend policy of a firm is optimized for its investors.

A firm has $400 million of assets that includes $50 million of cash and 10 million shares outstanding.The firm uses $40 million of its cash to pay dividends.If an investor has 1000 shares,how many shares must she sell to create a homemade dividend of $4900?

Why do firms issue stock dividends or split their stock?

A firm has $200 million of assets that includes $50 million of cash and 8 million shares outstanding.If the firm uses $20 million of its cash to repurchase shares,what is the new price per share?

Omicron's enterprise value is closest to:

A firm has $75 million of assets that includes $12 million of cash and 25 million shares outstanding.If the firm uses $12 million of cash to repurchase shares,what is the new price per share?

What are the different ways a firm can repurchase shares?

What is the difference between an open market share repurchase and a targeted repurchase?

In perfect capital markets,buying and selling securities is a zero-NPV transaction,so retaining cash versus paying it out does not affect firm value.

When a firm repurchases shares,the supply of shares is ________,but at the same time,the firm's assets ________.

Corporations enjoy a tax advantage associated with dividends due to:

Because ________ are seen as an implicit commitment,they send a ________ signal of financial strength to shareholders.

A firm has $300 million of assets that includes $50 million of cash and 10 million shares outstanding.If the firm uses $30 million of its cash to repurchase shares,what is the new price per share?

Firms may retain large amounts of cash to cover future potential needs that allows a firm to avoid:

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

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

Dividend payments that are the result of liquidation of assets are known as ________ and are taxed as capital gains.

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 repurchases shares,the supply of shares is ,but at the same time,the firm's assets .

Because are seen as an implicit commitment,they send a signal of financial strength to shareholders.