Question 1

Because money has a time value investors should prefer that dividends be paid sooner rather than later. Agree or disagree. Explain your answer with a numerical example.

Accepted Answer

When investors buy a company's shares, t

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

Cash dividends and repurchase offers are

Question 4

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 5

What are the effects of stock splits and stock dividends? Why are they popular?

Accepted Answer

Economically, the only effect of a stock

Question 6

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 7

The stable dividend policy is the most common.

Accepted Answer

A) True 
 B)False

Question 8

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.

Accepted Answer

A)  EPS before would be $2; after the dividend, EPS would be $1.85. 
B)  EPS before would be $0.50; after the dividend, EPS would be $0.46. 
C)  Since they made $100 million in net income, the EPS cannot change. 
D)  There is not enough information to make this calculation. 
A)  EPS before would be $2; after the dividend, EPS would be $1.85. 
B)  EPS before would be $0.50; after the dividend, EPS would be $0.46. 
C)  Since they made $100 million in net income, the EPS cannot change. 
D)  There is not enough information to make this calculation.

Question 9

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 =

Question 10

Dividend policy is influenced by

Accepted Answer

A)  a company's investment opportunities. 
B)  a firm's capital structure mix. 
C)  a company's availability of internally generated funds. 
D)  all of the above. 
A)  a company's investment opportunities. 
B)  a firm's capital structure mix. 
C)  a company's availability of internally generated funds. 
D)  all of the above.

Question 11

Which of the following is the most probable way in which a shareholder will benefit from a stock split?

Accepted Answer

A)  The immediately lower share price will attract enough increased interest in the stock to cause the market price to increase on a more consistent basis. 
B)  The immediately higher number of shares that an investor owns immediately increases the investor's wealth. 
C)  The shareholder can use the immediately increased wealth to borrow more money to buy even more shares at the immediately lower market price. 
D)  A shareholder can lose money after a stock split if the market believes that the split was an artificial way of attracting attention to a company that is not well managed. 
A)  The immediately lower share price will attract enough increased interest in the stock to cause the market price to increase on a more consistent basis. 
B)  The immediately higher number of shares that an investor owns immediately increases the investor's wealth. 
C)  The shareholder can use the immediately increased wealth to borrow more money to buy even more shares at the immediately lower market price. 
D)  A shareholder can lose money after a stock split if the market believes that the split was an artificial way of attracting attention to a company that is not well managed.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)  an increase in the P/E ratio. 
B)  an increase in the common stock's market value. 
C)  an increase in the number of shares outstanding. 
D)  cannot be determined from the above. 
A)  an increase in the P/E ratio. 
B)  an increase in the common stock's market value. 
C)  an increase in the number of shares outstanding. 
D)  cannot be determined from the above.

Question 15

The ex-dividend date is ________ the holder of record date.

Accepted Answer

A)  five days before 
B)  two weeks before 
C)  two days before 
D)  three days after 
A)  five days before 
B)  two weeks before 
C)  two days before 
D)  three days after

Question 16

Georges Bizet owns 10,000 shares of Pearl Co. purchased at an average price of $15 per share. The tax rate on both dividends and capital gains is 15%. Would Bizet prefer a $2.00 per share dividend or to sell 1,000 shares back to the company at $20 per share? Compute his after-tax income from each option.

Accepted Answer

If Bizet receives the dividend, his tax

Question 17

In practice, determinants of dividend policy include, in order of importance

Accepted Answer

A)  lack of good investment opportunities, influence of large institutional investors, maintaining a stable debt to assets ratio 
B)  maintaining a constant dividend payout ratio, attracting retail investors, maintaining a consistent growth rate for dividends 
C)  consistency with historical dividend policies, sustainable changes in earnings, tax burden on shareholders. 
D)  wishes of large institutional investors, excess cash after investment needs are met, avoiding flotation costs for issuing new equity. 
A)  lack of good investment opportunities, influence of large institutional investors, maintaining a stable debt to assets ratio 
B)  maintaining a constant dividend payout ratio, attracting retail investors, maintaining a consistent growth rate for dividends 
C)  consistency with historical dividend policies, sustainable changes in earnings, tax burden on shareholders. 
D)  wishes of large institutional investors, excess cash after investment needs are met, avoiding flotation costs for issuing new equity.

Question 18

Assume that Home Depot's annual dividend is $3.00 per share. This dividend would most likely be paid as

Accepted Answer

A)  $1.50 twice a year. 
B)  $3.00 once a year. 
C)  whenever the company had extra cash. 
D)  $0.75 four times per year. 
A)  $1.50 twice a year. 
B)  $3.00 once a year. 
C)  whenever the company had extra cash. 
D)  $0.75 four times per year.

Question 19

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.

Question 20

The ________ designates the date on which the stock transfer books are closed in regard to a dividend payment.

Accepted Answer

A)  declaration date 
B)  ex-dividend date 
C)  date of record 
D)  payment date 
A)  declaration date 
B)  ex-dividend date 
C)  date of record 
D)  payment date

Because money has a time value investors should prefer that dividends be paid sooner rather than later. Agree or disagree. Explain your answer with a numerical example.

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.

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.

What are the effects of stock splits and stock dividends? Why are they popular?

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?

The stable dividend policy is the most common.

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.

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?

Dividend policy is influenced by

Which of the following is the most probable way in which a shareholder will benefit from a stock split?

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

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

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

The ex-dividend date is ________ the holder of record date.

In practice, determinants of dividend policy include, in order of importance

Assume that Home Depot's annual dividend is $3.00 per share. This dividend would most likely be paid as

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

The ________ designates the date on which the stock transfer books are closed in regard to a dividend payment.

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

Because money has a time value investors should prefer that dividends be paid sooner rather than later. Agree or disagree. Explain your answer with a numerical example.

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.

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.

What are the effects of stock splits and stock dividends? Why are they popular?

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?

The stable dividend policy is the most common.

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.

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?

Dividend policy is influenced by

Which of the following is the most probable way in which a shareholder will benefit from a stock split?

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

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

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

The ex-dividend date is ________ the holder of record date.

In practice, determinants of dividend policy include, in order of importance

Assume that Home Depot's annual dividend is $3.00 per share. This dividend would most likely be paid as

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

The ________ designates the date on which the stock transfer books are closed in regard to a dividend payment.

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