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

Question 2

A stock split will cause changes in the dollar value of which of the following?

Accepted Answer

A)  The par value of the stock
B)  The book value of common equity
C)  The market value of common equity
D)  The per share price of the stock D

Question 3

ZZZ Corporation has declared a stock dividend that pays one share of stock for every 10 shares owned.What will happen to EPS immediately upon the distribution of the stock dividend?

Accepted Answer

A)  There is not enough information to know.
B)  EPS will increase by 10%.
C)  EPS will not be affected by the stock dividend.
D)  EPS will decrease by 10%. D

Question 4

In the absence of taxes or transaction costs,investors

Accepted Answer

A)  would prefer immediate dividends to future capital gains.
B)  who did not want a dividend could use dividends to purchase more shares.
C)  could create their own dividends by selling the appropriate number of shares.
D)  Both B and C are correct.

Question 5

We typically expect to find rapidly growing firms to have high payout ratios.

Accepted Answer

A) True 
 B)False

Question 6

The clientele effect suggests that firms can change their dividend policy frequently with no potential adverse effect on the firm.

Accepted Answer

A) True 
 B)False

Question 7

Use the following information to answer the following question(s).
Your firm is planning a 2 for 1 stock split.The market price for the stock has been $84.The table below presents the equity portion of your firm's balance sheet before the split.
Common stock
Par value
(1 million shares
outstanding;$4 par value)$ 4,000,000
Paid-in capital 16,000,000
Retained earnings 30,000,000
Total equity $50,000,000
-After the stock split,the number of shares outstanding,their par value and the total common stock account will stand at

Accepted Answer

A)  2,000,000;$4.00;$8,000,000.
B)  500,000;$8.00;$4,000,000.
C)  2,000,000;$2.00;$4,000,000.
D)  500,000;$2.00,$2,000,000.

Question 8

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.

Question 9

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.

Question 10

Which of the following considerations would be expected to influence a firm's decision regarding the payment of dividends?

Accepted Answer

A)  Earnings predictability
B)  Legal restrictions
C)  Liquidity position
D)  All of the above

Question 11

Which of the following is most likely to have a negative impact on stock price?

Accepted Answer

A)  Omitting a stock repurchase offer
B)  Failure to increase the dividend at the same rate as previous years
C)  Cutting the dividend per share in dollar terms
D)  Reducing the dividend payout ratio

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

If investor's expect a 15% rate of return on their investment,they will be indifferent between a $1.00 dividend received immediately or

Accepted Answer

A)  $1.15 received at the end of the year.
B)  $1.00 received later.
C)  $0.87 received at the end of the year.
D)  $1.00 increase in the stock price a year later.

Question 14

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

Question 15

Which of the following motivates corporations to split their common stock?

Accepted Answer

A)  To keep the price of the firm's common stock within an optimum price range
B)  To increase retained earnings
C)  To reallocate capital to shareholders
D)  To narrow ownership of the firm

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Trevor Co.'s future earnings for the next four years are predicted below.Assuming there are 500,000 shares outstanding,what will the yearly dividend per share be if the dividend policy is as follows?
a.A constant payout ratio of 40%
b.Stable dollar dividend targeted at 40% of the average earnings over the four-year period
c.Small,regular dividend of $0.75 plus a year-end extra of 40% of profits exceeding $1 million
Trevor Co.
Year 1 $ 900,000
Year 2 1,200,000
Year 3 850,000
Year 4 1,350,000

Accepted Answer

The answer of Trevor Co.'s future earnings for the next...

Question 18

Dividends tend to be higher for firms with stable earnings.

Accepted Answer

A) True 
 B)False

Question 19

The ex-dividend date occurs prior to the declaration date.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 16: Dividend Policy

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

A stock split will cause changes in the dollar value of which of the following?

ZZZ Corporation has declared a stock dividend that pays one share of stock for every 10 shares owned.What will happen to EPS immediately upon the distribution of the stock dividend?

In the absence of taxes or transaction costs,investors

We typically expect to find rapidly growing firms to have high payout ratios.

The clientele effect suggests that firms can change their dividend policy frequently with no potential adverse effect on the firm.

The problem with the residual dividend policy ratio is

Dividend policy is influenced by

Which of the following considerations would be expected to influence a firm's decision regarding the payment of dividends?

Which of the following is most likely to have a negative impact on stock price?

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

If investor's expect a 15% rate of return on their investment,they will be indifferent between a $1.00 dividend received immediately or

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

Which of the following motivates corporations to split their common stock?

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

Dividends tend to be higher for firms with stable earnings.

The ex-dividend date occurs prior to the declaration date.

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.