Question 1

Randall's has 34,000 shares of stock outstanding with a par value of $1 per share. The market value is $23 per share. The balance sheet shows $152,000 in the capital in excess of par account, $34,000 in the common stock account, and $67,500 in the retained earnings account. The firm just announced a 5 percent (small) stock dividend. What will be the balance in the retained earnings account after the dividend?

Accepted Answer

A)   $28,400
B)   $29,500
C)   $30,500
D)   $27,800
E)   $32,500 A

Question 2

Bell Weather Markets has recently sold for as little as $8 a share and as much as $15 a share. The difference between these two prices is referred to as the:

Accepted Answer

A)   price variance.
B)   bid-ask spread.
C)   trading range.
D)   opening price.
E)   closing price. C

Question 3

The owners' equity accounts for Buel Industries include common stock of $24,000 with a $1 par value, capital in excess of par value of $287,000, and retained earnings of $408,500. How many shares will be outstanding and what will be the par value per share if the firm declares a reverse stock split of one-for-four?

Accepted Answer

A)   6,000; $1.00
B)   6,000; $4.00
C)   24,000; $.25
D)   96,000; $.25
E)   96,000; $4.00 B

Question 4

Frozen Foods just paid out $3.62 a share to its shareholders. The cash for these payments came from a large sale of assets, not from any earnings of the firm. What are these payments to shareholders called?

Accepted Answer

A)   Dividends
B)   Distributions
C)   Repurchases
D)   Payments-in-kind
E)   Stock splits

Question 5

Which one of the following is a direct result of a two-for-one stock split?

Accepted Answer

A)   A 100 percent increase in the number of shareholders
B)   A 100 percent increase in the common stock account balance
C)   A 100 percent decrease in the stock price
D)   A 50 percent increase in the number of shares outstanding
E)   A 50 percent decrease in the par value per share

Question 6

Josh's Inc. has 4,800 shares of stock outstanding with a par value of $1 per share and a market value of $19 a share. The balance sheet shows $149,000 in the capital in excess of par account, $4,800 in the common stock account, and $192,800 in the retained earnings account. The firm just announced a stock dividend of 10 percent. What is the value of the capital in excess of par account after the dividend?

Accepted Answer

A)   $161,300
B)   $149,000
C)   $152,280
D)   $157,640
E)   $164,400

Question 7

The fact that flotation costs can be significant is an argument for:

Accepted Answer

A)   issuing larger regular dividends than the industry norm.
B)   maintaining a constant dividend policy even if the firm frequently has to issue new shares.
C)   periodic extra dividend payments.
D)   maintaining a constant dividend policy even when profits decline significantly.
E)   maintaining a low dividend policy and rarely issuing extra dividends.

Question 8

Which one of the following is a result of a stock repurchase?

Accepted Answer

A)   Increase in the number of shares outstanding
B)   Increase in the market price per share
C)   Increase in the total equity of the repurchasing firm
D)   Decrease in EPS
E)   PE ratio equal to that resulting from a comparable cash dividend

Question 9

Aaron purchased 500 shares of KMP stock on May 8. On May 16, he purchased another 200 shares and then on May 20 he purchased a final 100 shares of KMP stock. The company declared a dividend of $.94 a share on May 6 to holders of record on Friday, May 22. The dividend is payable on June 12. How much dividend income will Steve receive on June 12?

Accepted Answer

A)   $752
B)   $640
C)   $658
D)   $728
E)   $680

Question 10

What is the information content effect?

Accepted Answer

A)   Any type of new information that causes a company to cease paying dividends
B)   Any news announcement that was anticipated and thus produces no reaction from investors
C)   The primary contributing data that helps directors determine the amount of a particular dividend payment
D)   Any type of reaction from a shareholder in response to a news announcement related to the stock issuer
E)   The financial market's reaction to a change in the amount of a company's dividend

Question 11

Which one of the following refers to the ability of shareholders to undo a company's dividend policy and create an alternative dividend policy by reinvesting dividends or selling shares of stock?

Accepted Answer

A)   Perfect foresight model
B)   Personalization
C)   Recapitalization
D)   Offsetting leverage
E)   Homemade dividend

Question 12

A small stock dividend is defined as a stock dividend of less than ________ percent.

Accepted Answer

A)   10 to 15
B)   15 to 20
C)   20 to 25
D)   25 to 30
E)   30 to 35

Question 13

Verbal Communications has 18,400 shares of stock outstanding with a par value of $1 per share and a market value of $43 per share. The firm just announced a stock dividend of 100 percent. What is the market value per share after the dividend?

Accepted Answer

A)   $21.50
B)   $20.50
C)   $27.00
D)   $26.50
E)   $43.00

Question 14

Alfonzo's Italian House has 17,000 shares of stock outstanding with a par value of $1 per share and a market price of $24.60 a share. The firm just announced a stock split of three-for-two. What will be the market price per share after the split?

Accepted Answer

A)   $16.40
B)   $18.60
C)   $28.20
D)   $24.60
E)   $36.90

Question 15

The dividend market is in equilibrium when:

Accepted Answer

A)   all companies adopt a low dividend policy.
B)   half of the companies adopt a low dividend policy and half adopt a high dividend policy.
C)   all clienteles are satisfied.
D)   dividends remain constant and no special dividends are declared.
E)   the total amount of the annual dividends is equal to the net income for the year.

Question 16

Which one of the following statements related to cash dividends is correct?

Accepted Answer

A)   Extra cash dividends cannot be repeated in the future.
B)   A dividend is never a liability of the issuer until it has been declared.
C)   If a firm has paid regular quarterly dividends for at least five consecutive years, it is legally obligated to continue doing so.
D)   Regular cash dividends reduce paid-in capital.
E)   The dividend yield expresses the annual dividend as a percentage of net income.

Question 17

Built Rite Corp. is evaluating an extra dividend versus a share repurchase. In either case, $7,500 would be spent. Current earnings are $1.24 per share, and the stock currently sells for $32 per share. There are 5,000 shares outstanding. Ignore taxes and other imperfections. You own one share of stock in this company. If the company issues the dividend, your total investment will be worth ________ as compared to ________ if the company opts for a share repurchase.

Accepted Answer

A)   $30.50; $30.50
B)   $27.50; $32.00
C)   $27.50; $30.50
D)   $27.50; $27.50
E)   $32.00; $32.00

Question 18

United Foods declared a dividend of $.62 a share on Thursday, October 16. The dividend will be paid on Monday, November 10, to shareholders of record on Friday, October 31. Which one of the following is the ex-dividend date?

Accepted Answer

A)   Tuesday, October 28
B)   Wednesday, October 29
C)   Thursday, October 30
D)   Wednesday, November 5
E)   Thursday, November 6

Question 19

The ex-dividend date is defined as ________ business day(s) prior to the date of record

Accepted Answer

A)   1
B)   2
C)   3
D)   5
E)   10

Question 20

Which one of the following statements related to dividend policy is correct?

Accepted Answer

A)   The primary question related to dividend policy is whether or not a dividend should ever be paid.
B)   Both dividends and dividend policy are irrelevant.
C)   Dividend policy focuses on the timing of dividend payments.
D)   Homemade dividends increase the importance of a company's dividend policy decisions.
E)   Whether or not a company ever pays a dividend is irrelevant to equity valuation.

Exam 17: Dividends and Payout Policy