Question 1

Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.Omicron's cum-dividend price is closest to:

Accepted Answer

A) $50.00 
B) $40.00 
C) $5.00 
D) $45.00 
E) $35.00 
A) $50.00 
B) $40.00 
C) $5.00 
D) $45.00 
E) $35.00

Question 2

Historical evidence shows that over the last few decades a larger proportion of firms have used ________ for payouts.

Accepted Answer

A) repurchases 
B) dividends 
C) stock reverse splits 
D) stock splits 
E) seasoned equity offerings 
A) repurchases 
B) dividends 
C) stock reverse splits 
D) stock splits 
E) seasoned equity offerings

Question 3

BC Brewery has a current share price of $37.50,and has announced a dividend payment of $1.25 per share.Assuming perfect capital markets,what should the price of BC Brewery be once the stock begins trading ex-dividend?

Accepted Answer

A) $37.50 
B) $36.25 
C) $38.75 
D) $35 
E) $38 
A) $37.50 
B) $36.25 
C) $38.75 
D) $35 
E) $38

Question 4

Empirical evidence about the behaviour of financial managers suggests that firms ________ repurchase activity and also ________ dividend payments.

Accepted Answer

A) smooth,smooth 
B) smooth,do not smooth 
C) do not smooth,do not smooth 
D) do not smooth,smooth 
E) sometimes smooth,do not smooth 
A) smooth,smooth 
B) smooth,do not smooth 
C) do not smooth,do not smooth 
D) do not smooth,smooth 
E) sometimes smooth,do not smooth

Question 5

Another to method to repurchase shares is the ________,in which the firm lists different prices at which it is prepared to buy shares,and shareholders in turn indicate how many shares they are willing to sell at each price.

Accepted Answer

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

Question 6

The date on which the board of directors of a company authorizes the dividend is 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 7

CCR stock is currently trading at $63 per share.If CCR issues a 25% stock dividend,what would its new share price be?

Accepted Answer

A) $50.40 
B) $78.75 
C) $15.75 
D) $252.00 
E) $63.00 
A) $50.40 
B) $78.75 
C) $15.75 
D) $252.00 
E) $63.00

Question 8

The way a firm chooses between alternate uses of free cash flow is referred to as:

Accepted Answer

A) retention ratio. 
B) payout policy. 
C) call policy. 
D) debt policy. 
E) investment policy. 
A) retention ratio. 
B) payout policy. 
C) call policy. 
D) debt policy. 
E) investment policy.

Question 9

With perfect capital markets,investors prefer share repurchases to receiving dividends.

Accepted Answer

A) True 
 B)False

Question 10

Homemade dividend refers to the process by which an investor:

Accepted Answer

A) can take on more debt. 
B) chooses between equity and debt. 
C) can sell shares to create a dividend policy to suit his preferences. 
D) reinvests dividend payments. 
E) automatically withdraws money from his investment account. 
A) can take on more debt. 
B) chooses between equity and debt. 
C) can sell shares to create a dividend policy to suit his preferences. 
D) reinvests dividend payments. 
E) automatically withdraws money from his investment account.

Question 11

Modigliani and Miller Dividend Irrelevance states that in perfect capital markets,holding ________ policy fixed,the firm's choice of dividend policy is irrelevant and does not affect the initial share price.

Accepted Answer

A) debt 
B) investment 
C) interest rate 
D) equity issuance 
E) payout 
A) debt 
B) investment 
C) interest rate 
D) equity issuance 
E) payout

Question 12

What is the effect on the stock price when a firm repurchases its shares?

Accepted Answer

There is a common misconception that the

Question 13

A firm may announce its intention to buy its own shares in the open market like any other investor,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 14

Assume that Omicron uses the entire $50 million to repurchase shares.The amount of the regular yearly dividends in the future is closest to:

Accepted Answer

A) $9.00 
B) $5.00 
C) $4.50 
D) $4.00 
E) $5.50 
A) $9.00 
B) $5.00 
C) $4.50 
D) $4.00 
E) $5.50

Question 15

According to the dividend signalling hypothesis,firms smooth their dividends in order to maintain consistent cash flows and thus increase investor confidence in the firm.

Accepted Answer

A) True 
 B)False

Question 16

A firm may decide to eliminate the threat of a takeover by a major shareholder by purchasing shares from him at a premium 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 17

The largest proportion of investors in common stock are:

Accepted Answer

A) mutual funds. 
B) pension funds. 
C) corporations. 
D) individual investors. 
E) hedge funds. 
A) mutual funds. 
B) pension funds. 
C) corporations. 
D) individual investors. 
E) hedge funds.

Question 18

A firm can distribute shares of a subsidiary in a transaction referred to as a:

Accepted Answer

A) merger. 
B) spin-off. 
C) acquisition. 
D) cash disbursement. 
E) seasoned equity offering. 
A) merger. 
B) spin-off. 
C) acquisition. 
D) cash disbursement. 
E) seasoned equity offering.

Question 19

If there is a tax disadvantage to retaining cash,why do some firms accumulate large cash balances?

Accepted Answer

Generally,firms retain cash ba

Question 20

Collingwood Costumes is an all-equity firm with 80 million shares outstanding.Collingwood has $75 million in cash,and expects future free cash flows of $15 million per year.The cash can be used to expand the firm's future operations,increasing future free cash flows to $16 million per year.If Collingwood's cost of capital for the expansion is 10%,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 $0.12 higher with expansion. 
B) Share price is $0.12 higher with repurchase. 
C) Share price is the same with both options. 
D) Share price is $0.81 higher with expansion. 
E) Share price is $0.81 higher with repurchase. 
A) Share price is $0.12 higher with expansion. 
B) Share price is $0.12 higher with repurchase. 
C) Share price is the same with both options. 
D) Share price is $0.81 higher with expansion. 
E) Share price is $0.81 higher with repurchase.

Exam 17: Payout Policy

Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.Omicron's cum-dividend price is closest to:

Historical evidence shows that over the last few decades a larger proportion of firms have used ________ for payouts.

BC Brewery has a current share price of $37.50,and has announced a dividend payment of $1.25 per share.Assuming perfect capital markets,what should the price of BC Brewery be once the stock begins trading ex-dividend?

Empirical evidence about the behaviour of financial managers suggests that firms ________ repurchase activity and also ________ dividend payments.

Another to method to repurchase shares is the ________,in which the firm lists different prices at which it is prepared to buy shares,and shareholders in turn indicate how many shares they are willing to sell at each price.

The date on which the board of directors of a company authorizes the dividend is called the ________ date.

CCR stock is currently trading at $63 per share.If CCR issues a 25% stock dividend,what would its new share price be?

The way a firm chooses between alternate uses of free cash flow is referred to as:

With perfect capital markets,investors prefer share repurchases to receiving dividends.

Homemade dividend refers to the process by which an investor:

Modigliani and Miller Dividend Irrelevance states that in perfect capital markets,holding ________ policy fixed,the firm's choice of dividend policy is irrelevant and does not affect the initial share price.

What is the effect on the stock price when a firm repurchases its shares?

A firm may announce its intention to buy its own shares in the open market like any other investor,also known as a(n):

Assume that Omicron uses the entire $50 million to repurchase shares.The amount of the regular yearly dividends in the future is closest to:

According to the dividend signalling hypothesis,firms smooth their dividends in order to maintain consistent cash flows and thus increase investor confidence in the firm.

A firm may decide to eliminate the threat of a takeover by a major shareholder by purchasing shares from him at a premium also known as a(n):

The largest proportion of investors in common stock are:

A firm can distribute shares of a subsidiary in a transaction referred to as a:

If there is a tax disadvantage to retaining cash,why do some firms accumulate large cash balances?

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

Empirical evidence about the behaviour of financial managers suggests that firms repurchase activity and also dividend payments.