Question 1

Dividend policy may affect firm value because
I.there is an unsatisfied clientele that prefer dividends to capital gains;
II.there are sufficient loopholes in the tax system that wealthy shareholders can avoid taxes on dividends;
III.well-managed companies prefer to signal their worth by paying high dividends

Accepted Answer

A) I only 
B) I and II only 
C) I and III only 
D) II and III only

Question 2

Miller and Modigliani's argument for dividend irrelevance assumes an efficient market.

Accepted Answer

A) True 
 B)False

Question 3

Consider the payout policies of U.S. nonfinancial firms from 2011-2017. Which category had the highest percentage of firms?

Accepted Answer

A) Firms that paid dividends and repurchased shares 
B) Firms that paid dividends but did not repurchase shares 
C) Firms that paid no dividends but did repurchase shares 
D) Firms that paid no dividends and did not repurchase shares

Question 4

Many companies have automatic dividend reinvestment plans (DRIPs).

Accepted Answer

A) True 
 B)False

Question 5

Company X has 100 shares outstanding. It earns $1,000 per year and expects to pay all of it as dividends. If the firm expects to maintain this dividend forever, calculate the stock price today. (The required rate of return is 10 percent.)

Accepted Answer

A) $110 
B) $100 
C) $90 
D) $10

Question 6

If the corporate tax rate is 21 percent, what is the maximum effective tax rate on dividends received by another corporation?

Accepted Answer

A) 30 percent 
B) 21 percent 
C) 6.3 percent 
D) 63 percent

Question 7

Which of the following are true?
I.Firms have long-run target dividend payout ratios.
II.Dividend changes follow shifts in long-term, sustainable earnings.
III.Managers are reluctant to make dividend changes that might have to be reversed.

Accepted Answer

A) I only 
B) II only 
C) III only 
D) I, II, and III

Question 8

Briefly describe the middle-of-the-roaders' position on dividend policy.

Accepted Answer

The answer of Briefly describe the middle-of-the-roaders' position on dividend...

Question 9

The following statements are true of dividend reinvestment plans (DRIPs):
I.They are offered by the companies to their shareholders.
II.Generally, new shares are issued at a discount.
III.The dividends are taxable as ordinary income.

Accepted Answer

A) I only 
B) I and III only 
C) I, II, and III 
D) III only

Question 10

What information does a share repurchase convey to investors?

Accepted Answer

The answer of What information does a share repurchase convey...

Exam 16: Payout Policy