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Exam 10: The Features of Stock

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Question 21

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The owners of a corporation elect the board of directors.​

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Question 22

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Dividends reinvested are not subject to federal income tax.​

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Question 23

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Dividends may be paid in 1) cash 2) stock 3) retained earnings

The retention of earnings instead of paying dividends

If a stock's price is $90 and the stock is split three for one, the price becomes

Cumulative voting concentrates voting power in the hands of a majority of corporate voters.​

Pre-emptive rights mean that current stockholders have the right to maintain their proportionate ownership before new shares may be sold to the general public.​

A constant payout ratio implies dividends vary with earnings.​

Dividend reinvestment plans permit stockholders to defer income taxes on dividends.​

Currently the price of a stock is $58 a share. The firm's balance sheet is as follows: ​ Assets Liabilities and Equity Cash $\$ 10,000,000$ Accounts payable $\$ 20,000,000$ Accounts 250,000,000 Long-term debt $400,000,000$ receivable Common stock ( $\$ 10$ par; $10,000,000$ Inventory $120,000,000 \quad 1,000,000$ shares outstanding) Plant and 325,000,000 Paid-in capital $90,000,000$ equipment _ Retained earnings $\underline { 185,000,000 }$ $\$ 705,000,000$ $\$ 705,000,000$ ​ ​ Construct a new balance sheet showing the impact of a two-for-one stock split. What will be the new price of the stock?

Most publicly held American firms that pay dividends tend to pay a regular quarterly cash dividend.​

A company whose stock is selling for $45 has the following balance sheet: $\begin{array}{ll}\text { Assets }\quad\$32,000\quad\quad\quad\text { Liabilities }\quad\$10,000\\\text { Common stock }&6,000\\\text { (\$6 par; 1,000 }\text { shares issued) }\\\text { Additional paid-in capital }&2,000\\\text { Retained eamings }&14,000\end{array}$ ​ a. Construct a new balance sheet showing a 3 for 1 stock split. What is the new price for the stock? ​ b. What would be the balance sheet if the firm paid a 10 percent stock dividend (instead of the stock split)? ​

Stockholders who seek to defer taxes prefer capital gains to dividends.​

Once a firm has earnings, management has essentially two choices: distribute or retain them.​

Which of the following are true concerning dividend reinvestment plans? ​1) taxes are deferred 2) they offer stockholders a convenient means to save 3) the firm may pay the brokerage and other fees associated with the plans

A cash dividend reduces the firm's assets.​

A stock dividend causes the firm's​

When a stock goes ex‑dividend, its price tends to decline by the amount of the cash dividend. l> ​

A reverse split increases the number of shares the firm has outstanding.​

A stock dividend decreases retained earnings.​