Question 1

Under the ideal conditions of perfect capital markets,dividend policy has no effect upon share price.

Accepted Answer

A) True 
 B)False

Question 2

The difference between the capital gains tax rate and the income tax rate is an incentive for

Accepted Answer

A)   firms never to split their stock.
B)   firms to declare more stock dividends.
C)   firms to pay more earnings as dividends.
D)   firms to retain more earnings.

Question 3

Sinkmaster Corp.settled a large lawsuit that caused earnings to be negative for the quarter.This quarterly loss was the first in 22 years.In addition,the company has a record of 48 consecutive quarters of dividend payments.Which of the following is correct?

Accepted Answer

A)   The company cannot pay dividends this quarter since the company had no earnings.
B)   The company can use cash generated through prior retention of earnings, or borrowed funds to pay the dividend.
C)   The company can omit the dividend; shareholders are always understanding about the riskiness of business.
D)   The clientele effect says that investor choice of investment vehicle is independent of dividend policy and therefore the payment/omission of the dividend is immaterial.

Question 4

Within the context of a stock repurchase,what is meant by a tender offer?

Accepted Answer

If management intends to repurchase a bl...

Question 5

A stock repurchase plan can be viewed as both a financing decision and an investment decision.

Accepted Answer

A) True 
 B)False

Question 6

While Rogue Corporation has been in business for over 50 years,newly developed products pushed the firm's year-over-year growth rate to 35% during the latest three years.The firm is proud of its history of paying dividends,but the vigorous recent growth of the firm has left it cash challenged.Which of the following policies/procedures would you consider best under the circumstances?

Accepted Answer

A)   Borrow long-term to pay the current dividend.
B)   Look seriously for a merger partner.
C)   Enter into a long-term stock repurchase program.
D)   Substitute a stock dividend for the current cash dividend.

Question 7

According to the expectations theory,the actual dividend must equal the expected dividend,or else the stock price will decrease after the dividend amount is announced.

Accepted Answer

A) True 
 B)False

Question 8

If John owns 5% of XYZ Corporation before its 2 for 1 stock split,John will own 5% of XYZ Corporation after the stock split as well.

Accepted Answer

A) True 
 B)False

Question 9

High dividends may increase stock values due to all of the following reasons EXCEPT

Accepted Answer

A)   dividends are more certain than capital gains.
B)   higher dividends are used to signal higher expected future earnings.
C)   dividends are used as a tool to minimize agency costs.
D)   higher dividends allow companies to increase their proportion of external equity financing.

Question 10

The higher the dividend payout ratio,the more a company must rely on external financing.

Accepted Answer

A) True 
 B)False

Question 11

An investor who requires a 12% percent return for a stock that pays no dividends and requires a 9% return for a stock that pays its entire return from dividends is most likely a proponent of

Accepted Answer

A)   the bird-in-the-hand dividend theory.
B)   the residual dividend theory.
C)   the clientele effect.
D)   the information effect.

Question 12

A stock dividend differs from a stock split because in a stock split,the par value of the company's stock is reduced,while the par value remains the same after a stock dividend is paid.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following transactions will decrease a corporation's retained earnings?

Accepted Answer

A)   The corporation declares and pays a $2 per share cash dividend.
B)   The company completes a 2 for 1 stock split.
C)   The company pays a 20% stock dividend.
D)   Both A and C

Question 14

A firm that maintains a "stable dollar dividend per share" will generally not increase the dividend unless

Accepted Answer

A)   a stock split occurs.
B)   the firm merges with another profitable firm.
C)   the firm is sure that a higher dividend level can be maintained.
D)   the P/E ratio has increased steadily over the past 5 years.

Question 15

The president of Smith Brothers,Inc.wants a dividend policy that minimizes the likelihood of decreasing the company's dividend per share.Which of the following policies should the CEO select?

Accepted Answer

A)   constant dividend payout ratio
B)   stable dollar dividend per share
C)   regular dividend plus a year-end extra
D)   All policies have the same likelihood of a dividend decrease because dividend changes are dependent on changes in earnings.

Question 16

Outpost has 2 million shares of common stock outstanding; net income is $300,000; the P/E ratio is 9; and management is considering an 18% stock dividend.What will be the expected effect on the price of the common stock? If an investor owns 300 shares in the company,how does this change his total value? Explain.

Accepted Answer

Before dividend:

The total ...

Question 17

How frequently do corporations generally pay dividends?

Accepted Answer

A)   annually
B)   semiannually
C)   quarterly
D)   monthly

Question 18

The dividend irrelevance hypothesis is based on all of the following assumptions EXCEPT

Accepted Answer

A)   investment decisions will not be altered by the amount of dividend payments.
B)   investors do not need cash dividends to supplement their current income.
C)   perfect capital markets.
D)   borrowing decisions will not be altered by the amount of dividend payments.

Question 19

According to the "bird-in-the-hand" dividend theory,the required return for a stock that pays its entire return from dividends is higher than the required return for a high-growth stock that pays no dividend.

Accepted Answer

A) True 
 B)False

Question 20

What is the difference between a stock split and a stock dividend?

Accepted Answer

A stock dividend entails the distributio...

Exam 13: Dividend Policy and Internal Financing

Correct Answer
verified
Before dividend:

The total ...
View Answer

The higher the dividend payout ratio,the more a company must rely on external financing.

Correct Answer
verified

An investor who requires a 12% percent return for a stock that pays no dividends and requires a 9% return for a stock that pays its entire return from dividends is most likely a proponent of

Correct Answer
verified

The difference between the capital gains tax rate and the income tax rate is an incentive for

Correct Answer
verified

Which of the following transactions will decrease a corporation's retained earnings?

Correct Answer
verified

High dividends may increase stock values due to all of the following reasons EXCEPT

Correct Answer
verified

A stock repurchase plan can be viewed as both a financing decision and an investment decision.

Correct Answer
verified

Sinkmaster Corp.settled a large lawsuit that caused earnings to be negative for the quarter.This quarterly loss was the first in 22 years.In addition,the company has a record of 48 consecutive quarters of dividend payments.Which of the following is correct?

Correct Answer
verified

Within the context of a stock repurchase,what is meant by a tender offer?

Correct Answer
verified
If management intends to repurchase a bl...
View Answer

A stock dividend differs from a stock split because in a stock split,the par value of the company's stock is reduced,while the par value remains the same after a stock dividend is paid.

Correct Answer
verified

According to the expectations theory,the actual dividend must equal the expected dividend,or else the stock price will decrease after the dividend amount is announced.

Correct Answer
verified

The president of Smith Brothers,Inc.wants a dividend policy that minimizes the likelihood of decreasing the company's dividend per share.Which of the following policies should the CEO select?

Correct Answer
verified

How frequently do corporations generally pay dividends?

Correct Answer
verified

A firm that maintains a "stable dollar dividend per share" will generally not increase the dividend unless

Correct Answer
verified

According to the "bird-in-the-hand" dividend theory,the required return for a stock that pays its entire return from dividends is higher than the required return for a high-growth stock that pays no dividend.

Correct Answer
verified

Correct Answer
verified

The dividend irrelevance hypothesis is based on all of the following assumptions EXCEPT

Correct Answer
verified

If John owns 5% of XYZ Corporation before its 2 for 1 stock split,John will own 5% of XYZ Corporation after the stock split as well.

Correct Answer
verified

Under the ideal conditions of perfect capital markets,dividend policy has no effect upon share price.

Correct Answer
verified

What is the difference between a stock split and a stock dividend?

Correct Answer
verified
A stock dividend entails the distributio...
View Answer

Exam 13: Dividend Policy and Internal Financing

Correct AnswerverifiedBefore dividend: The total ...View AnswerShow Answer

The higher the dividend payout ratio,the more a company must rely on external financing.

Correct AnswerverifiedShow Answer

An investor who requires a 12% percent return for a stock that pays no dividends and requires a 9% return for a stock that pays its entire return from dividends is most likely a proponent of

Correct AnswerverifiedShow Answer

The difference between the capital gains tax rate and the income tax rate is an incentive for

Correct AnswerverifiedShow Answer

Which of the following transactions will decrease a corporation's retained earnings?

Correct AnswerverifiedShow Answer

High dividends may increase stock values due to all of the following reasons EXCEPT

Correct AnswerverifiedShow Answer

A stock repurchase plan can be viewed as both a financing decision and an investment decision.

Correct AnswerverifiedShow Answer

Sinkmaster Corp.settled a large lawsuit that caused earnings to be negative for the quarter.This quarterly loss was the first in 22 years.In addition,the company has a record of 48 consecutive quarters of dividend payments.Which of the following is correct?

Correct AnswerverifiedShow Answer

Within the context of a stock repurchase,what is meant by a tender offer?

Correct AnswerverifiedIf management intends to repurchase a bl...View AnswerShow Answer

A stock dividend differs from a stock split because in a stock split,the par value of the company's stock is reduced,while the par value remains the same after a stock dividend is paid.

Correct AnswerverifiedShow Answer

According to the expectations theory,the actual dividend must equal the expected dividend,or else the stock price will decrease after the dividend amount is announced.

Correct AnswerverifiedShow Answer

The president of Smith Brothers,Inc.wants a dividend policy that minimizes the likelihood of decreasing the company's dividend per share.Which of the following policies should the CEO select?

Correct AnswerverifiedShow Answer

How frequently do corporations generally pay dividends?

Correct AnswerverifiedShow Answer

A firm that maintains a "stable dollar dividend per share" will generally not increase the dividend unless

Correct AnswerverifiedShow Answer

According to the "bird-in-the-hand" dividend theory,the required return for a stock that pays its entire return from dividends is higher than the required return for a high-growth stock that pays no dividend.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The dividend irrelevance hypothesis is based on all of the following assumptions EXCEPT

Correct AnswerverifiedShow Answer

If John owns 5% of XYZ Corporation before its 2 for 1 stock split,John will own 5% of XYZ Corporation after the stock split as well.

Correct AnswerverifiedShow Answer

Under the ideal conditions of perfect capital markets,dividend policy has no effect upon share price.

Correct AnswerverifiedShow Answer

What is the difference between a stock split and a stock dividend?

Correct AnswerverifiedA stock dividend entails the distributio...View AnswerShow Answer

Correct Answer
verified
Before dividend:

The total ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
If management intends to repurchase a bl...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
A stock dividend entails the distributio...
View Answer