Question 1

Common stock dividends tend to be more stable than

Accepted Answer

A) cash flow. 
B) earnings. 
C) preferred stock dividends. 
D) bond interest. 
A) cash flow. 
B) earnings. 
C) preferred stock dividends. 
D) bond interest.

Question 2

A stock dividend increases a firm's retained earnings.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) The clientele effect looks at investor preferences for dividends compared to share repurchase programs. 
B) The clientele effect defines the relationship between the shareholder and a stockbroker. 
C) The clientele effect focuses entirely on the stability of dividends. 
D) Modern corporations do not consider shareholders to be "clients." 
A) The clientele effect looks at investor preferences for dividends compared to share repurchase programs. 
B) The clientele effect defines the relationship between the shareholder and a stockbroker. 
C) The clientele effect focuses entirely on the stability of dividends. 
D) Modern corporations do not consider shareholders to be "clients."

Question 4

The clientele effect suggests that a firm's dividend policy will be affected by the needs of the shareholders.

Accepted Answer

A) True 
 B)False

Question 5

Managers are prohibited from using dividend changes and repurchase offers to communicate information concerning their future expectations concerning the firm's cash flows.

Accepted Answer

A) True 
 B)False

Question 6

Assume that on January 1 a firm announces that on June 30 they will pay a dividend of $2.50 per share to holders of record on March 30.When does the stock sell ex-dividend?

Accepted Answer

A) January 5 
B) April 5 
C) March 28 
D) July 5 
E) June 25 
A) January 5 
B) April 5 
C) March 28 
D) July 5 
E) June 25

Question 7

Five years ago,Mr.Martinez purchased 1000 shares of JPM stock at $50 per share.If Mr.Martinez ' tax rate is 25%,would he prefer that the company pay a $5.00 per share dividend or offer to repurchase 100 shares at $50 per share?

Accepted Answer

A) Pay the dividend because he would have no transaction costs. 
B) It would make no difference because he would receive $5,000 either way. 
C) Repurchase the stock because he would owe no taxes. 
D) It would make no difference because the tax rate on dividends is the same as the tax rate on capital gains. 
A) Pay the dividend because he would have no transaction costs. 
B) It would make no difference because he would receive $5,000 either way. 
C) Repurchase the stock because he would owe no taxes. 
D) It would make no difference because the tax rate on dividends is the same as the tax rate on capital gains.

Question 8

A firm with high profitability will always have the cash flow necessary to pay high dividends.

Accepted Answer

A) True 
 B)False

Question 9

The dividend declaration date is the date at which the stock transfer books are to be closed for determining the investor to receive the next dividend payment.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is least important to repurchase decisions of large American corporations?

Accepted Answer

A) The previous level of dividends. 
B) The tax consequences to shareholders. 
C) Lack of good investment opportunities for cash retained in the firm. 
D) The company is holding more cash than it would like. 
A) The previous level of dividends. 
B) The tax consequences to shareholders. 
C) Lack of good investment opportunities for cash retained in the firm. 
D) The company is holding more cash than it would like.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is most plausible?

Accepted Answer

A) Increases in stock price associated with a dividend increase are likely due to information conveyed by the increase. 
B) Increases in stock price associated with a dividend increase are likely due to changes in the company's capital structure. 
C) Increases in stock price associated with a dividend increase are likely due to investors' preference for dividends over capital gains. 
D) Increases in stock price associated with a dividend increase are likely due to the favorable tax treatment of dividends over capital gains. 
A) Increases in stock price associated with a dividend increase are likely due to information conveyed by the increase. 
B) Increases in stock price associated with a dividend increase are likely due to changes in the company's capital structure. 
C) Increases in stock price associated with a dividend increase are likely due to investors' preference for dividends over capital gains. 
D) Increases in stock price associated with a dividend increase are likely due to the favorable tax treatment of dividends over capital gains.

Question 13

Reducing dividends will usually have a negative impact on the stock price.

Accepted Answer

A) True 
 B)False

Question 14

M.Camus bought 1000 shares of Oran Co.at $60 per share and 100 shares of Gitane Co.at $40 per share.Both stocks are now worth $50 per share.Both companies have offered to repurchase their shares.If M.Camus would like to have about $5,000 in cash,should he sell the Oran or Gitane?

Accepted Answer

A) Oran,because a tax deduction on the loss will leave him with more than $5,000 and taxes on the capital gain from Gitane would leave him with less than $5,000. 
B) Gitane because the price is rising. 
C) He should sell equal amounts of each so that his gains cancel out his losses. 
D) there is no difference,he makes $5,000 either way. 
A) Oran,because a tax deduction on the loss will leave him with more than $5,000 and taxes on the capital gain from Gitane would leave him with less than $5,000. 
B) Gitane because the price is rising. 
C) He should sell equal amounts of each so that his gains cancel out his losses. 
D) there is no difference,he makes $5,000 either way.

Question 15

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.
Common stock
Par value
(1 million shares
outstanding;$4 par value)$ 4,000,000
Paid-in capital 16,000,000
Retained earnings 30,000,000
Total equity $50,000,000
-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 16

Transaction costs

Accepted Answer

A) encourage firms to retain earnings rather than pay dividends. 
B) encourage firms to pay large dividends.rather than retain earnings. 
C) are encountered whenever a firm pays a dividend. 
D) are incurred when investors fail to cash their dividend check. 
A) encourage firms to retain earnings rather than pay dividends. 
B) encourage firms to pay large dividends.rather than retain earnings. 
C) are encountered whenever a firm pays a dividend. 
D) are incurred when investors fail to cash their dividend check.

Question 17

In the absence of taxes,transaction costs,or changes in a firm's operating or investment policies

Accepted Answer

A) the greater the payout ratio,the greater the share price of the firm. 
B) the price of a share of stock is not affected by dividend policy. 
C) the firm should retain earnings so stockholders will receive a capital gain. 
D) the firm should pay a dividend only after current equity financing needs have been met. 
A) the greater the payout ratio,the greater the share price of the firm. 
B) the price of a share of stock is not affected by dividend policy. 
C) the firm should retain earnings so stockholders will receive a capital gain. 
D) the firm should pay a dividend only after current equity financing needs have been met.

Question 18

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 19

Fred Handel owns 2000 shares of Haydn Inc.stock which is currently selling for $18 per share.If the company repurchases 10% of its outstanding shares at $18 per share and Fred chooses to sell back 200 shares

Accepted Answer

A) his investment in the company and his percentage of ownership will each decrease by 10%. 
B) his investment in the company and his percentage of ownership will stay the same. 
C) his investment in the company will decrease by $3,600 and his percentage of ownership will stay the same. 
D) the value of his remaining shares will increase to $20 per share and his percentage of ownership will fall by 10%. 
A) his investment in the company and his percentage of ownership will each decrease by 10%. 
B) his investment in the company and his percentage of ownership will stay the same. 
C) his investment in the company will decrease by $3,600 and his percentage of ownership will stay the same. 
D) the value of his remaining shares will increase to $20 per share and his percentage of ownership will fall by 10%.

Question 20

Which of the following motivates corporations to enter into stock repurchase programs?

Accepted Answer

A) Favorable impact on EPS 
B) Expected favorable impact on stock price 
C) To modify the firm's capital structure 
D) All of the above 
A) Favorable impact on EPS 
B) Expected favorable impact on stock price 
C) To modify the firm's capital structure 
D) All of the above

Common stock dividends tend to be more stable than

A stock dividend increases a firm's retained earnings.

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

The clientele effect suggests that a firm's dividend policy will be affected by the needs of the shareholders.

Managers are prohibited from using dividend changes and repurchase offers to communicate information concerning their future expectations concerning the firm's cash flows.

Assume that on January 1 a firm announces that on June 30 they will pay a dividend of $2.50 per share to holders of record on March 30.When does the stock sell ex-dividend?

Five years ago,Mr.Martinez purchased 1000 shares of JPM stock at $50 per share.If Mr.Martinez ' tax rate is 25%,would he prefer that the company pay a $5.00 per share dividend or offer to repurchase 100 shares at $50 per share?

A firm with high profitability will always have the cash flow necessary to pay high dividends.

The dividend declaration date is the date at which the stock transfer books are to be closed for determining the investor to receive the next dividend payment.

Which of the following is least important to repurchase decisions of large American corporations?

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

Which of the following statements is most plausible?

Reducing dividends will usually have a negative impact on the stock price.

M.Camus bought 1000 shares of Oran Co.at $60 per share and 100 shares of Gitane Co.at $40 per share.Both stocks are now worth $50 per share.Both companies have offered to repurchase their shares.If M.Camus would like to have about $5,000 in cash,should he sell the Oran or Gitane?

Transaction costs

In the absence of taxes,transaction costs,or changes in a firm's operating or investment policies

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.

Fred Handel owns 2000 shares of Haydn Inc.stock which is currently selling for $18 per share.If the company repurchases 10% of its outstanding shares at $18 per share and Fred chooses to sell back 200 shares

Which of the following motivates corporations to enter into stock repurchase programs?

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

Common stock dividends tend to be more stable than

A stock dividend increases a firm's retained earnings.

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

The clientele effect suggests that a firm's dividend policy will be affected by the needs of the shareholders.

Managers are prohibited from using dividend changes and repurchase offers to communicate information concerning their future expectations concerning the firm's cash flows.

Assume that on January 1 a firm announces that on June 30 they will pay a dividend of $2.50 per share to holders of record on March 30.When does the stock sell ex-dividend?

Five years ago,Mr.Martinez purchased 1000 shares of JPM stock at $50 per share.If Mr.Martinez ' tax rate is 25%,would he prefer that the company pay a $5.00 per share dividend or offer to repurchase 100 shares at $50 per share?

A firm with high profitability will always have the cash flow necessary to pay high dividends.

The dividend declaration date is the date at which the stock transfer books are to be closed for determining the investor to receive the next dividend payment.

Which of the following is least important to repurchase decisions of large American corporations?

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

Which of the following statements is most plausible?

Reducing dividends will usually have a negative impact on the stock price.

M.Camus bought 1000 shares of Oran Co.at $60 per share and 100 shares of Gitane Co.at $40 per share.Both stocks are now worth $50 per share.Both companies have offered to repurchase their shares.If M.Camus would like to have about $5,000 in cash,should he sell the Oran or Gitane?

Transaction costs

In the absence of taxes,transaction costs,or changes in a firm's operating or investment policies

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.

Fred Handel owns 2000 shares of Haydn Inc.stock which is currently selling for $18 per share.If the company repurchases 10% of its outstanding shares at $18 per share and Fred chooses to sell back 200 shares

Which of the following motivates corporations to enter into stock repurchase programs?

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