Question 1

Which of the following reasons is used to justify stock repurchases?

Accepted Answer

A) The repurchase narrows ownership. 
B) The repurchase modifies the firm's capital structure. 
C) The repurchase reduces the firm's costs associated with servicing small stockholders. 
D) All of the above. 
A) The repurchase narrows ownership. 
B) The repurchase modifies the firm's capital structure. 
C) The repurchase reduces the firm's costs associated with servicing small stockholders. 
D) All of the above.

Question 2

For accounting purposes,a stock split has been defined as a stock dividend exceeding

Accepted Answer

A) 25%. 
B) 35%. 
C) 45%. 
D) 55%. 
A) 25%. 
B) 35%. 
C) 45%. 
D) 55%.

Question 3

The stable dividend policy is the most common.

Accepted Answer

A) True 
 B)False

Question 4

When a firm makes the decision to pay dividends,it also makes the decision not to reinvest the cash in the firm.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following policies would appeal to an investor using dividends to increase her retirement income?

Accepted Answer

A) Maintaining smoothly increasing dividends from year to year. 
B) A residual dividend policy. 
C) Maintaining a constant dividend payout ratio. 
D) A stock repurchase plan. 
A) Maintaining smoothly increasing dividends from year to year. 
B) A residual dividend policy. 
C) Maintaining a constant dividend payout ratio. 
D) A stock repurchase plan.

Question 6

Chandler Corporation has 1 million shares outstanding.The current price per share is $20.If the company decides to pay a $2 million dollar dividend,the company will have ________ shares outstanding worth approximately ________.

Accepted Answer

A) 900,000,$20 per share 
B) 1,000,000,$20 per share 
C) 900,000,$22.22 per share 
D) 1,000,000,$18 per share 
A) 900,000,$20 per share 
B) 1,000,000,$20 per share 
C) 900,000,$22.22 per share 
D) 1,000,000,$18 per share

Question 7

What is meant by "dividend clienteles"? Give specific examples.

Accepted Answer

Some investors purchase stocks with a re

Question 8

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

a.Number of shares after split = 3/2 × 1

Question 9

The financial crisis of 2008-2009 caused an unusually large number of companies to cut their dividends.

Accepted Answer

A) True 
 B)False

Question 10

Dividend payouts have the effect of lowering the company's debt to equity ratio.

Accepted Answer

A) True 
 B)False

Question 11

The residual dividend theory suggests that dividends should be paid to stockholders first,and then,what is left can be reinvested by the firm.

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

The residual dividend theory indicates that a firm would never pay dividends unless the firm's profits were larger than its equity financing needs.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following describes the effect of a stock dividend?

Accepted Answer

A) A stock dividend immediately increases the market price of a share of stock. 
B) A stock dividend immediately decreases the paid-in capital account. 
C) A stock dividend immediately increases the number of shares outstanding. 
D) A stock dividend indicates that the company must be short on cash. 
A) A stock dividend immediately increases the market price of a share of stock. 
B) A stock dividend immediately decreases the paid-in capital account. 
C) A stock dividend immediately increases the number of shares outstanding. 
D) A stock dividend indicates that the company must be short on cash.

Question 15

A reverse stock split,1 for 10 for example,should result in a higher price per share.

Accepted Answer

A) True 
 B)False

Question 16

Compare management's motives for preferring either stock repurchases or cash dividends.

Accepted Answer

Cash dividends and repurchase offers are

Question 17

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 18

Compare the Stable Dividend Payout to the Residual Dividend Policy.

Accepted Answer

A stable dividend payout policy tries to

Question 19

If dividends and capital gains are taxed at the same rate,should investors prefer cash dividends or stock repurchases?

Accepted Answer

A) They would prefer to have neither a dividend nor a stock repurchase. 
B) It would not matter.Either cash dividends or stock repurchases would result in the same after-tax cash flow. 
C) They should prefer cash dividends to stock repurchases. 
D) They should prefer stock repurchases to cash dividends. 
A) They would prefer to have neither a dividend nor a stock repurchase. 
B) It would not matter.Either cash dividends or stock repurchases would result in the same after-tax cash flow. 
C) They should prefer cash dividends to stock repurchases. 
D) They should prefer stock repurchases to cash dividends.

Question 20

From the firm's point of view,a major advantage of stock repurchases over cash dividends is

Accepted Answer

A) a commitment to maintain or increase repurchases every year. 
B) a stronger signal about the firm's financial strength. 
C) that they restrain agency costs. 
D) that the repurchases imply no commitment to pay the same amount or more every year. 
A) a commitment to maintain or increase repurchases every year. 
B) a stronger signal about the firm's financial strength. 
C) that they restrain agency costs. 
D) that the repurchases imply no commitment to pay the same amount or more every year.

Which of the following reasons is used to justify stock repurchases?

For accounting purposes,a stock split has been defined as a stock dividend exceeding

The stable dividend policy is the most common.

When a firm makes the decision to pay dividends,it also makes the decision not to reinvest the cash in the firm.

Which of the following policies would appeal to an investor using dividends to increase her retirement income?

Chandler Corporation has 1 million shares outstanding.The current price per share is $20.If the company decides to pay a $2 million dollar dividend,the company will have shares outstanding worth approximately .

What is meant by "dividend clienteles"? Give specific examples.

The financial crisis of 2008-2009 caused an unusually large number of companies to cut their dividends.

Dividend payouts have the effect of lowering the company's debt to equity ratio.

The residual dividend theory suggests that dividends should be paid to stockholders first,and then,what is left can be reinvested by the firm.

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.

The residual dividend theory indicates that a firm would never pay dividends unless the firm's profits were larger than its equity financing needs.

Which of the following describes the effect of a stock dividend?

A reverse stock split,1 for 10 for example,should result in a higher price per share.

Compare management's motives for preferring either stock repurchases or cash dividends.

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

Compare the Stable Dividend Payout to the Residual Dividend Policy.

If dividends and capital gains are taxed at the same rate,should investors prefer cash dividends or stock repurchases?

From the firm's point of view,a major advantage of stock repurchases over cash dividends is

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

Which of the following reasons is used to justify stock repurchases?

For accounting purposes,a stock split has been defined as a stock dividend exceeding

The stable dividend policy is the most common.

When a firm makes the decision to pay dividends,it also makes the decision not to reinvest the cash in the firm.

Which of the following policies would appeal to an investor using dividends to increase her retirement income?

Chandler Corporation has 1 million shares outstanding.The current price per share is $20.If the company decides to pay a $2 million dollar dividend,the company will have ________ shares outstanding worth approximately ________.

What is meant by "dividend clienteles"? Give specific examples.

The financial crisis of 2008-2009 caused an unusually large number of companies to cut their dividends.

Dividend payouts have the effect of lowering the company's debt to equity ratio.

The residual dividend theory suggests that dividends should be paid to stockholders first,and then,what is left can be reinvested by the firm.

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.

The residual dividend theory indicates that a firm would never pay dividends unless the firm's profits were larger than its equity financing needs.

Which of the following describes the effect of a stock dividend?

A reverse stock split,1 for 10 for example,should result in a higher price per share.

Compare management's motives for preferring either stock repurchases or cash dividends.

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

Compare the Stable Dividend Payout to the Residual Dividend Policy.

If dividends and capital gains are taxed at the same rate,should investors prefer cash dividends or stock repurchases?

From the firm's point of view,a major advantage of stock repurchases over cash dividends is

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

Chandler Corporation has 1 million shares outstanding.The current price per share is $20.If the company decides to pay a $2 million dollar dividend,the company will have shares outstanding worth approximately .