Question 1

In a world with no taxes or transaction costs, dividend policy is irrelevant.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is the best deﬁnition of a stock split?

Accepted Answer

A)   Stocks attract particular groups based on dividend yield and the resulting tax effects.
B)   Price range between highest and lowest prices at which a stock is traded.
C)   A ﬁrm's long-term desired dividend-to-earnings ratio.
D)   Common stock on which dividends and capital gains are repackaged and sold separately.
E)   An increase in a ﬁrm's shares outstanding without any change in owner's equity.

Question 3

Firms use reverse splits because they:

Accepted Answer

A)   Decide to divide the company's stock into a fewer number of outstanding shares.
B)   Want to change directions in product development
C)   Are reversing complex derivative security contracts
D)   Decide to increase the number of outstanding shares.
E)   Believe the stock price is too high.

Question 4

A ﬁrm can make it easier for an investor to create a homemade dividend policy if the ﬁrm:

Accepted Answer

A)   Offers an automated dividend reinvestment plan.
B)   Uses the residual dividend approach.
C)   Pays a regular cash dividend.
D)   Completes a stock split.
E)   Pursues a compromise dividend policy.

Question 5

LT Truckers declared a quarterly dividend on October 3 to record holders as of Tuesday, November 7. The dividend will be paid on Friday, November 31. Alexa purchased 500 shares of LT stock on
November 3. Al sold 250 shares of LT stock on November 6. Who will receive the dividend payment
On November 31?

Accepted Answer

A)   Alexa only.
B)   Al only.
C)   both Alexa and Al.
D)   neither Alexa nor Al.
E)   Cannot be determined from the information provided.

Question 6

Bob's Auto Group has 25,000 shares of stock outstanding at a market price of $4.50 per share. What will the market price per share be if the company does a 1-for-5 reverse stock split?

Accepted Answer

A)   $18.00
B)   $20.00
C)   $22.50
D)   $27.00
E)   $29.50

Question 7

Which of the following is NOT accurate regarding share repurchases?

Accepted Answer

A)   In a perfect world, there would be essentially no difference between a share repurchase and a cash dividend.
B)   Share repurchases cannot be undertaken with the sole purpose of avoiding taxes.
C)   Repurchasing shares is a useful method of stabilizing cash dividends.
D)   Share repurchases result in an increase in earnings per share.
E)   Investors will not prefer share repurchases to extra cash dividends if the capital gains tax rate is lower than the tax rate on dividends.

Question 8

All else the same, an investor is likely to prefer a ﬁrm with a high dividend payout if the ﬁrm's
dividend payout is restricted by a bond indenture.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is the best deﬁnition of a date of payment?

Accepted Answer

A)   Date on which the board of directors passes a resolution to pay a dividend.
B)   Date on which holders of record are designated to receive a dividend.
C)   Date of the dividend payment.
D)   Payment made out of a ﬁrm's earnings to its owners, either in the form of cash or stock.
E)   Payment made by a ﬁrm to its owners from sources other than current or accumulated earnings.

Question 10

The date by which a stockholder must be registered on the ﬁrm's roll as having share ownership in order to receive a declared dividend is called the _______________.

Accepted Answer

A)   Date of ex-rights.
B)   Date of ex-dividend.
C)   Date of record.
D)   Date of payment.
E)   Date of declaration.

Question 11

Stockholders' desire for current income is a factor that favor a high dividend policy.

Accepted Answer

A) True 
 B)False

Question 12

The primary function of dividend policy is to establish the:

Accepted Answer

A)   Ex-dividend date once the date of record has been set.
B)   Declaration date.
C)   Amount of the current dividend versus the amount of the future dividends.
D)   Residual amount that can be paid out in dividends.
E)   Guidelines for dividend reinvestments.

Question 13

Uncertainty resolution tends to keep dividends low.

Accepted Answer

A) True 
 B)False

Question 14

The issuance of one new share of stock to replace three outstanding shares is called a:

Accepted Answer

A)   Stock dividend.
B)   Stock split.
C)   Reverse stock dividend.
D)   Reverse stock split.
E)   Stock repurchase.

Question 15

SesameSweet Inc. has 220,000 shares outstanding with a market price of $12 per share. On the balance sheet, common stock is $760,000, and retained earnings are $275,000. There are no
Transactions costs.
Suppose SesameSweet declares a 2-for-1 stock split. What happens to the common stock account
On the balance sheet?

Accepted Answer

A)   The account remains unchanged.
B)   The account increases by $22,000.
C)   The account increases by $44,000.
D)   The account increases by $242,000.
E)   The account increases by $264,000.

Question 16

Which of the following is the best deﬁnition of a stock dividend?

Accepted Answer

A)   Payment made by a ﬁrm to its owners in the form of stock, diluting the value of each share outstanding.
B)   Procedure where a ﬁrm's number of shares outstanding is reduced.
C)   Policy where a ﬁrm pays dividends only after meeting its investment needs while maintaining a desired debt-to-equity ratio.
D)   Another method used to pay out a ﬁrm's earnings to its owners, which provides more preferable tax treatment than dividends.
E)   Cash payment made by a ﬁrm to its owners in the normal course of business, usually made four times a year.

Question 17

Casper, Inc. has total assets of $250,000, total debt of $50,000, and 50,000 shares of common stock with a book value of $115,000 as of the beginning of their ﬁscal year. During the year the
Company produced taxable income of $138,000. The company also paid quarterly dividends of $.40
A share during the year. The tax rate is 35%. What is the amount of the retained earnings at the end
Of the ﬁscal year?

Accepted Answer

A)   $74,700
B)   $75,300
C)   $94,700
D)   $143,000
E)   $154,700

Question 18

A dividend becomes a liability of the issuer on the:

Accepted Answer

A)   Date of record.
B)   Declaration date.
C)   Reinvestment date.
D)   Payment date.
E)   Ex-dividend date.

Question 19

Automatic dividend reinvestment plans help stockholders create their own homemade dividend
policies.

Accepted Answer

A) True 
 B)False

Question 20

Shares of GME, Inc. stock normally sell at a price no lower than $42 and no higher than $55. These prices are referred to as the stock's:

Accepted Answer

A)   Repurchase range.
B)   Trading range.
C)   Liquidation range.
D)   Target payout range.
E)   Clientele range.

Exam 17: Dividends and Payout Policy

Firms use reverse splits because they:

Correct Answer
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Correct Answer
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Shares of GME, Inc. stock normally sell at a price no lower than $42 and no higher than $55. These prices are referred to as the stock's:

Correct Answer
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Which of the following is the best deﬁnition of a stock split?

Correct Answer
verified

Correct Answer
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All else the same, an investor is likely to prefer a ﬁrm with a high dividend payout if the ﬁrm's dividend payout is restricted by a bond indenture.

Correct Answer
verified

Uncertainty resolution tends to keep dividends low.

Correct Answer
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In a world with no taxes or transaction costs, dividend policy is irrelevant.

Correct Answer
verified

The issuance of one new share of stock to replace three outstanding shares is called a:

Correct Answer
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The primary function of dividend policy is to establish the:

Correct Answer
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Bob's Auto Group has 25,000 shares of stock outstanding at a market price of $4.50 per share. What will the market price per share be if the company does a 1-for-5 reverse stock split?

Correct Answer
verified

Automatic dividend reinvestment plans help stockholders create their own homemade dividend policies.

Correct Answer
verified

The date by which a stockholder must be registered on the ﬁrm's roll as having share ownership in order to receive a declared dividend is called the _______________.

Correct Answer
verified

Which of the following is the best deﬁnition of a date of payment?

Correct Answer
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A dividend becomes a liability of the issuer on the:

Correct Answer
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Which of the following is NOT accurate regarding share repurchases?

Correct Answer
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A ﬁrm can make it easier for an investor to create a homemade dividend policy if the ﬁrm:

Correct Answer
verified

Which of the following is the best deﬁnition of a stock dividend?

Correct Answer
verified

Correct Answer
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Stockholders' desire for current income is a factor that favor a high dividend policy.

Correct Answer
verified

Exam 17: Dividends and Payout Policy

Firms use reverse splits because they:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Shares of GME, Inc. stock normally sell at a price no lower than $42 and no higher than $55. These prices are referred to as the stock's:

Correct AnswerverifiedShow Answer

Which of the following is the best deﬁnition of a stock split?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

All else the same, an investor is likely to prefer a ﬁrm with a high dividend payout if the ﬁrm's dividend payout is restricted by a bond indenture.

Correct AnswerverifiedShow Answer

Uncertainty resolution tends to keep dividends low.

Correct AnswerverifiedShow Answer

In a world with no taxes or transaction costs, dividend policy is irrelevant.

Correct AnswerverifiedShow Answer

The issuance of one new share of stock to replace three outstanding shares is called a:

Correct AnswerverifiedShow Answer

The primary function of dividend policy is to establish the:

Correct AnswerverifiedShow Answer

Bob's Auto Group has 25,000 shares of stock outstanding at a market price of $4.50 per share. What will the market price per share be if the company does a 1-for-5 reverse stock split?

Correct AnswerverifiedShow Answer

Automatic dividend reinvestment plans help stockholders create their own homemade dividend policies.

Correct AnswerverifiedShow Answer

The date by which a stockholder must be registered on the ﬁrm's roll as having share ownership in order to receive a declared dividend is called the _______________.

Correct AnswerverifiedShow Answer

Which of the following is the best deﬁnition of a date of payment?

Correct AnswerverifiedShow Answer

A dividend becomes a liability of the issuer on the:

Correct AnswerverifiedShow Answer

Which of the following is NOT accurate regarding share repurchases?

Correct AnswerverifiedShow Answer

A ﬁrm can make it easier for an investor to create a homemade dividend policy if the ﬁrm:

Correct AnswerverifiedShow Answer

Which of the following is the best deﬁnition of a stock dividend?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Stockholders' desire for current income is a factor that favor a high dividend policy.

Correct AnswerverifiedShow Answer

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