Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Chandler Corporation has 1 million shares outstanding.The current price per share is $20.If the company decides to use $2 million dollars to repurchase shares at the market price,the company will have ________ shares outstanding worth approximately ________.Assume that the price does not change during the repurchase period.

Accepted Answer

A) 900,000,$20 per share 
B) 1,000,000,$20 per share 
C) 900,000,$22.22 per share 
D) 1,000,000,$18 per share

Question 3

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

Accepted Answer

A) Changes in EPS 
B) Maintain constant dividend payout ratio 
C) Avoiding flotation costs of selling new stock 
D) Avoid reducing dividends per share

Question 4

Millbury Gas and Oil's rate of return on equity is 12%.It can either pay a dividend of $5.00 today or reinvest the money and pay a dividend of $5.60 at the end of the year.From a shareholder's point of view,the value of the dividend paid now is ________ and the value of the dividend paid a year from now is ________.

Accepted Answer

A) $5.00,$4.46 
B) $5.00,$5.00 
C) $4.46,$5.00 
D) $5.60,$5.00

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

Assume that investors' have a 10% required rate of return on MTA stock.According to the Modigliani and Miller dividend indifference theorem,if investors could choose between a $1.00 dividend today and $1.10 dividend one year from today

Accepted Answer

A) they would prefer $1.00 today. 
B) they would prefer $1.10 one year from today. 
C) neither alternative would satisfy them. 
D) they would have no preference.

Question 7

The ex-dividend date is ________ the holder of record date.

Accepted Answer

A) five days before 
B) two weeks before 
C) two days before 
D) three days after

Question 8

A firm's payout is calculated as the ratio of retained earnings to earnings before interest and taxes (EBIT).

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) 1 million;$4. 
B) 1 million;$8. 
C) 2 million;$2. 
D) 2 million;$4.

Question 10

Most stock splits

Accepted Answer

A) increase the number of shares outstanding. 
B) increase the value of the company. 
C) tend to raise the price of the stock. 
D) all of the above.

Question 11

When a firm begins to pay dividends,it is signalling that it always expects to have enough cash flow to maintain and increase its dividend payout.

Accepted Answer

A) True 
 B)False

Question 12

Why has the popularity of stock repurchases been growing faster than the cash dividends as a method for companies to distribute cash to their stockholders.

Accepted Answer

The answer of Why has the popularity of stock repurchases...

Question 13

EG's board of directors announced a quarterly dividend of 25 cents.The ex-dividend date is November 3.On November 2,EG's stock closed at $40.00 per share.What is the most likely opening price on November 3?

Accepted Answer

A) $40.25 
B) $39.75 
C) $41.00 
D) $39.00

Question 14

Apple Computers decided to raise a large amount of money by selling bonds (previously the company had little or no debt)and use the proceeds to repurchase billions of dollars worth of the company's stock.The decision was made after Apple stock lost more than 40% of its value in a six month period when most stock prices were rising.

Accepted Answer

A) Apple wanted to lower its cost of capital by substituting debt for equity. 
B) Apple wanted to appease disappointed investors by offering them cash for their stock. 
C) Apple wanted to increase earning per share by reducing the number of shares outstanding. 
D) All of the above are reasonable explanations for Apple's decision.

Question 15

Which of the following is the most likely reason for a corporation to cut its dividend?

Accepted Answer

A) To keep the firm's price within its optimal range. 
B) Because the company believes that existing dividend levels are no longer sustainable. 
C) To make the firm more attractive to growth oriented investors. 
D) To shelter the shareholders from double taxation.

Question 16

The timing of dividend payments will not matter if the firm's rate of return on equity and the investor's required rate of return are the same.

Accepted Answer

A) True 
 B)False

Question 17

Because money has a time value investors should prefer that dividends be paid sooner rather than later.Agree or disagree.Explain your answer with a numerical example.

Accepted Answer

The answer of Because money has a time value investors...

Question 18

Under what conditions would the Modigliani and Miller dividend indifference theorem be literally true.

Accepted Answer

The answer of Under what conditions would the Modigliani and...

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Kelly owns 10,000 shares in McCormick Spices,which currently has 500,000 shares outstanding.The stock sells for $86 on the open market.McCormick's management has decided on a 2-1 split.
a.Will Kelly's financial position alter after the split,assuming that the stocks will fall proportionately?
b.Assuming only a 35% fall on each stock,what will be Kelly's value after the split?

Accepted Answer

The answer of Kelly owns 10,000 shares in McCormick Spices,which...

Exam 16: Dividend Policy

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

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

Millbury Gas and Oil's rate of return on equity is 12%.It can either pay a dividend of $5.00 today or reinvest the money and pay a dividend of $5.60 at the end of the year.From a shareholder's point of view,the value of the dividend paid now is and the value of the dividend paid a year from now is .

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.

Assume that investors' have a 10% required rate of return on MTA stock.According to the Modigliani and Miller dividend indifference theorem,if investors could choose between a $1.00 dividend today and $1.10 dividend one year from today

The ex-dividend date is ________ the holder of record date.

A firm's payout is calculated as the ratio of retained earnings to earnings before interest and taxes (EBIT).

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

Most stock splits

When a firm begins to pay dividends,it is signalling that it always expects to have enough cash flow to maintain and increase its dividend payout.

Why has the popularity of stock repurchases been growing faster than the cash dividends as a method for companies to distribute cash to their stockholders.

EG's board of directors announced a quarterly dividend of 25 cents.The ex-dividend date is November 3.On November 2,EG's stock closed at $40.00 per share.What is the most likely opening price on November 3?

Which of the following is the most likely reason for a corporation to cut its dividend?

The timing of dividend payments will not matter if the firm's rate of return on equity and the investor's required rate of return are the same.

Because money has a time value investors should prefer that dividends be paid sooner rather than later.Agree or disagree.Explain your answer with a numerical example.

Under what conditions would the Modigliani and Miller dividend indifference theorem be literally true.

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