Question 1

If a firm were to unexpectedly omit payment of its quarterly dividend,that firm's stock price would probably drop.

Accepted Answer

A) True 
 B)False

Question 2

Franklin Electric is presently generating earnings available to common shareholders of $7.25 per share.The firm's income tax rate is 40%.Franklin is paying a dividend to the preferred shareholders of $2.10 per share.The firm's dividend payout ratio on common stock is 20%.What is the amount per share that Franklin will pay in dividends to common shareholders?

Accepted Answer

A) $0.58 
B) $1.45 
C) $3.12 
D) $0.42 
E) $2.20 
A) $0.58 
B) $1.45 
C) $3.12 
D) $0.42 
E) $2.20

Question 3

Stock splits:

Accepted Answer

A) increase the number of shares outstanding. 
B) decrease the common stock account by the amount of the split. 
C) reduce retained earnings. 
D) increase the total wealth of stockholders. 
E) none of the above. 
A) increase the number of shares outstanding. 
B) decrease the common stock account by the amount of the split. 
C) reduce retained earnings. 
D) increase the total wealth of stockholders. 
E) none of the above.

Question 4

We typically expect to find rapidly growing firms to have high payout ratios.

Accepted Answer

A) True 
 B)False

Question 5

What is the fundamental purpose of a stock split?

Accepted Answer

A) A split shows the company's preference for retaining funds. 
B) A split immediately brings the stock price to a lower trading range. 
C) A split immediately increases the investor's wealth. 
D) A split increases the threat of a hostile takeover. 
A) A split shows the company's preference for retaining funds. 
B) A split immediately brings the stock price to a lower trading range. 
C) A split immediately increases the investor's wealth. 
D) A split increases the threat of a hostile takeover.

Question 6

XYZ Corporation has 400,000 shares of common stock outstanding,a P/E ratio of 8,and $500,000 available for common stockholders.The board of directors has just voted a 3-2 stock split.
a.If you had 100 shares of stock before the split,how many shares will you have after the split?
b.What was the total value of your investment in XYZ stock before the split?
c.What should be the total value of your investment in XYZ stock after the split?
d.In view of your answers to (b)and (c)above,why would a firm's management want to have a stock split?

Accepted Answer

The answer of XYZ Corporation has 400,000 shares of common...

Question 7

Which of the following statements about the residual dividend theory is FALSE?

Accepted Answer

A) The firm will maintain its optimum debt ratio in financing future investments. 
B) Dividend policy by itself has no direct influence on the market price of the firm's common stock. 
C) The firm will issue new common stock to finance investment opportunities in order to ensure that some dividend will be paid. 
D) The firm's investment opportunities,capital structure,and profitability all influence the firm's dividend policy. 
A) The firm will maintain its optimum debt ratio in financing future investments. 
B) Dividend policy by itself has no direct influence on the market price of the firm's common stock. 
C) The firm will issue new common stock to finance investment opportunities in order to ensure that some dividend will be paid. 
D) The firm's investment opportunities,capital structure,and profitability all influence the firm's dividend policy.

Question 8

Managers avoid cutting dividends even in response to short-term fluctuations in earnings.

Accepted Answer

A) True 
 B)False

Question 9

Dividends tend to be more stable than:

Accepted Answer

A) cash flow. 
B) earnings. 
C) preferred stock. 
D) both B and C. 
A) cash flow. 
B) earnings. 
C) preferred stock. 
D) both B and C.

Question 10

List the benefits of a firm repurchasing its own stock.

Accepted Answer

Stock repurchases can be very advantageo

Question 11

Which of the following is included in the Modigliani and Miller dividend indifference theorem?

Accepted Answer

A) Transaction costs 
B) Personal taxes 
C) Changes in the firm's investment policies 
D) All of the above 
A) Transaction costs 
B) Personal taxes 
C) Changes in the firm's investment policies 
D) All of the above

Question 12

Since 2003 for most investors the tax rate on dividends has been ________ and the tax rate on capital gains has been ________.

Accepted Answer

A) 28%,15% 
B) 15%,15% 
C) 25%,25% 
D) 20%,34% 
A) 28%,15% 
B) 15%,15% 
C) 25%,25% 
D) 20%,34%

Question 13

Pettry,Inc.expects EPS this year to be $5.25.If EPS grows at an average annual rate of 10%,and if Pettry pays 60% of its earnings as dividends,what will the expected dividend per share be in 10 years?

Accepted Answer

$5.25 (1 + 0.10)¹⁰ = 1

Question 14

A stock dividend will cause changes in the dollar value of which of the below capital accounts?

Accepted Answer

A) Common stock 
B) Additional paid-in capital 
C) Retained earnings 
D) All of the above 
A) Common stock 
B) Additional paid-in capital 
C) Retained earnings 
D) All of the above

Question 15

If instead of a stock dividend,your firm decided to split the stock 2-1,then the number of shares outstanding and their par value per share would be:

Accepted Answer

A) 1 million;$4. 
B) 1 million;$8. 
C) 2 million;$2. 
D) 2 million;$4. 
A) 1 million;$4. 
B) 1 million;$8. 
C) 2 million;$2. 
D) 2 million;$4.

Question 16

Which of the following motivates corporations to split their common stock?

Accepted Answer

A) To keep the price of the firm's common stock within an optimum price range 
B) To increase retained earnings 
C) To reallocate capital to shareholders 
D) To increase their paid-in capital 
A) To keep the price of the firm's common stock within an optimum price range 
B) To increase retained earnings 
C) To reallocate capital to shareholders 
D) To increase their paid-in capital

Question 17

Use the following information to answer the following question(s).
Your firm is planning to pay a 15% stock dividend.The market price for the stock has been $84.The table below presents the equity portion of your firm's balance sheet before the dividend.
  
-Which of the following would result from payment of the stock dividend?

Accepted Answer

A) Total equity would remain at $50,000,000. 
B) Total equity would increase to $57,500,000. 
C) Total equity would decrease to $43,478,261. 
D) The effect on the equity account would depend on the market's reaction to the dividend. 
A) Total equity would remain at $50,000,000. 
B) Total equity would increase to $57,500,000. 
C) Total equity would decrease to $43,478,261. 
D) The effect on the equity account would depend on the market's reaction to the dividend.

Question 18

Which of the following typically would NOT affect the dividend policy of the firm?

Accepted Answer

A) Today's dividend policy is affected by future dividend expectations among investors. 
B) Managers are afraid to decrease their voting control of the company by issuing stock dividends. 
C) The failure of so many high-tech and dot.com companies showed that dividends are important to long-term investors. 
D) The current and future cash flow expectations of the company affect dividend policy. 
A) Today's dividend policy is affected by future dividend expectations among investors. 
B) Managers are afraid to decrease their voting control of the company by issuing stock dividends. 
C) The failure of so many high-tech and dot.com companies showed that dividends are important to long-term investors. 
D) The current and future cash flow expectations of the company affect dividend policy.

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

If a firm's EPS are $8.33,and the firm is paying a dividend of $1.25 per share,what is the firm's dividend payout ratio?

Accepted Answer

A) 33% 
B) 6% 
C) 15% 
D) 25% 
E) 66% 
A) 33% 
B) 6% 
C) 15% 
D) 25% 
E) 66%

If a firm were to unexpectedly omit payment of its quarterly dividend,that firm's stock price would probably drop.

Stock splits:

We typically expect to find rapidly growing firms to have high payout ratios.

What is the fundamental purpose of a stock split?

Which of the following statements about the residual dividend theory is FALSE?

Managers avoid cutting dividends even in response to short-term fluctuations in earnings.

Dividends tend to be more stable than:

List the benefits of a firm repurchasing its own stock.

Which of the following is included in the Modigliani and Miller dividend indifference theorem?

Since 2003 for most investors the tax rate on dividends has been and the tax rate on capital gains has been .

Pettry,Inc.expects EPS this year to be $5.25.If EPS grows at an average annual rate of 10%,and if Pettry pays 60% of its earnings as dividends,what will the expected dividend per share be in 10 years?

A stock dividend will cause changes in the dollar value of which of the below capital accounts?

If instead of a stock dividend,your firm decided to split the stock 2-1,then the number of shares outstanding and their par value per share would be:

Which of the following motivates corporations to split their common stock?

Which of the following typically would NOT affect the dividend policy of the firm?

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.

If a firm's EPS are $8.33,and the firm is paying a dividend of $1.25 per share,what is the firm's dividend payout ratio?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 16: Dividend Policy

If a firm were to unexpectedly omit payment of its quarterly dividend,that firm's stock price would probably drop.

Stock splits:

We typically expect to find rapidly growing firms to have high payout ratios.

What is the fundamental purpose of a stock split?

Which of the following statements about the residual dividend theory is FALSE?

Managers avoid cutting dividends even in response to short-term fluctuations in earnings.

Dividends tend to be more stable than:

List the benefits of a firm repurchasing its own stock.

Which of the following is included in the Modigliani and Miller dividend indifference theorem?

Since 2003 for most investors the tax rate on dividends has been ________ and the tax rate on capital gains has been ________.

Pettry,Inc.expects EPS this year to be $5.25.If EPS grows at an average annual rate of 10%,and if Pettry pays 60% of its earnings as dividends,what will the expected dividend per share be in 10 years?

A stock dividend will cause changes in the dollar value of which of the below capital accounts?

If instead of a stock dividend,your firm decided to split the stock 2-1,then the number of shares outstanding and their par value per share would be:

Which of the following motivates corporations to split their common stock?

Which of the following typically would NOT affect the dividend policy of the firm?

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.

If a firm's EPS are $8.33,and the firm is paying a dividend of $1.25 per share,what is the firm's dividend payout ratio?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Since 2003 for most investors the tax rate on dividends has been and the tax rate on capital gains has been .