Exam 16: Dividend Policy

Although the rates have changed from time to time, dividends and capital gains have always been taxed at the same rate in the U.S.

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

Dividends tend to be higher for firms with stable earnings.

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.

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 not to sell any shares back to the company,

Which of the following circumstances is likely to motivate a firm to repurchase some of its stock?

Immediately after the stock split, the stock price will be approximately

Transaction costs

After a stock split of 2-1, each investor will have one-half of the percentage ownership in the firm that he had before the split.

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

In the absence of taxes or transaction costs, investors

Due to the strengthening of the stock market over the past 50 years, stock splits and stock dividends are more common than cash dividends.

There is absolutely no difference on an economic basis between a stock dividend and a stock split.

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 reasons is used to justify stock repurchases?

A reasonable conclusion about dividend policy is that management should avoid surprising investors when it comes to the firm's dividend decision.

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

Assume that as the result of a firm announcing a large unexpected increase in its dividend payment, the price of the firm's common stock rises. This event would be consistent with which of the following?

Which of the following is the most important factor motivating dividend policy for large American corporations?

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