Question 1

According to the residual dividend payout policy, dividends are considered a residual after

Accepted Answer

A)  investment financing needs have been met. 
B)  preferred stock is issued. 
C)  EPS is allocated. 
D)  retained earnings are financed. 
A)  investment financing needs have been met. 
B)  preferred stock is issued. 
C)  EPS is allocated. 
D)  retained earnings are financed.

Question 2

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 3

Company managers strive to gradually increase dividend series over the long-term future.

Accepted Answer

A) True 
 B)False

Question 4

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 5

A stock dividend increases a firm's retained earnings.

Accepted Answer

A) True 
 B)False

Question 6

The Modigliani and Miller dividend irrelevancy theorem states that

Accepted Answer

A)  dividends are preferable to stock repurchases. 
B)  the timing of cash distributions is important. 
C)  the timing of cash distributions is unimportant. 
D)  stock repurchases are preferable to dividends. 
A)  dividends are preferable to stock repurchases. 
B)  the timing of cash distributions is important. 
C)  the timing of cash distributions is unimportant. 
D)  stock repurchases are preferable to dividends.

Question 7

The problem with the residual dividend policy ratio is

Accepted Answer

A)  investors might come to expect a specified amount. 
B)  the dollar amount of the dividend fluctuates from year to year. 
C)  management is reluctant to cut the dividend even if there are low profits in a year. 
D)  all of the above are possible problems. 
A)  investors might come to expect a specified amount. 
B)  the dollar amount of the dividend fluctuates from year to year. 
C)  management is reluctant to cut the dividend even if there are low profits in a year. 
D)  all of the above are possible problems.

Question 8

In response to a temporary decline in earnings per share, most companies would

Accepted Answer

A)  decrease their cash dividend. 
B)  not decrease their cash dividend. 
C)  suspend their cash dividend. 
D)  substitute a stock dividend for the cash dividend. 
A)  decrease their cash dividend. 
B)  not decrease their cash dividend. 
C)  suspend their cash dividend. 
D)  substitute a stock dividend for the cash dividend.

Question 9

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 10

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 ×

According to the residual dividend payout policy, dividends are considered a residual after

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

Company managers strive to gradually increase dividend series over the long-term future.

A stock dividend increases a firm's retained earnings.

The Modigliani and Miller dividend irrelevancy theorem states that

The problem with the residual dividend policy ratio is

In response to a temporary decline in earnings per share, most companies would

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

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

According to the residual dividend payout policy, dividends are considered a residual after

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

Company managers strive to gradually increase dividend series over the long-term future.

A stock dividend increases a firm's retained earnings.

The Modigliani and Miller dividend irrelevancy theorem states that

The problem with the residual dividend policy ratio is

In response to a temporary decline in earnings per share, most companies would

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

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