Exam 16: Dividend Policy

The information effect of dividends suggests that dividends are an important communication tool since management might have no other credible way to inform investors about future earnings.

The clientele effect suggests that firms can change their dividend policy frequently with no potential adverse effect on the firm.

Use the following information to answer the following question(s). Your firm is planning a 2 for 1 stock split.The market price for the stock has been $84.The table below presents the equity portion of your firm's balance sheet before the split. -After the stock split,the number of shares outstanding,their par value and the total common stock account will stand at:

Under what conditions would the Modigliani and Miller dividend indifference theorem be literally true.

Which of the following describes the clientele effect concept of dividend policy?

The date upon which a dividend is formally declared by the board of directors is the ________ date.

Noblesville Auto Supply Company's stock is trading ex-dividend at $5 per share.The company just paid a 10% stock dividend.The P/E ratio for the stock is 10.What was the price of the stock prior to trading ex-dividend?

Assume that Home Depot's annual dividend is $0.96 per share.This dividend would most likely be paid as:

Dividend policy takes on greater importance when transaction fees and taxes are lower.

When considering taxes,most investors prefer capital gains over dividend income.

Which of the following is more true of cash dividends than of repurchase offers?

Brimfield Corp.has total cash available of $1 million,but decides to match last year's dividend payout of $1.5 million.If the company raises the extra $500,000 by selling stock,the decision to pay out more than its available cash in dividends should:

The only definite result from a stock dividend or a stock split is:

The final approval of a dividend payment comes from the:

According to the Modigliani & Miller dividend indifference theorem,if a company decreased its dividend per share,an investor would be forced to sell his common stock at a depressed price.

Information asymmetry takes into account the higher stock price that can be achieved due to certainty from the accessibility of information between management and investors.

Share repurchases convey information to investors that the shares are underpriced.

According to the residual dividend payout policy,dividends are considered a residual after:

Trendy Corp.recently declared a 10% stock dividend.As of the date of the announcement,Trendy had 10 million shares outstanding which were selling on the NYSE for $50 per share.An accounting entry is required on the balance sheet in order to transfer an amount from retained earnings to the common stock and additional paid-in capital accounts.What is the dollar amount of retained earnings that will be transferred from retained earnings to the common stock account as the result of the stock dividend? Assume that the par value of Trendy is $2 per share.

ZZZ Corporation had net income of $100 million last year and 50 million common shares outstanding.They declared an 8% stock dividend.Calculate EPS before and after the stock dividend.