Question 1

The residual dividend theory is based on the observation that flotation costs make the cost of new common stock significantly higher than the cost of retained earnings.

Accepted Answer

A) True 
 B)False

Question 2

Assume that a firm has a steady record of paying stable dividends for years.Market analysts had expected management to increase the dividend by 7.5% in the latest quarter.However,management announced a 15% increase in the current year's dividend.The market value of the stock rose 20% on the day of the announcement.Which of the following would best explain the stock market's reaction to the announcement?

Accepted Answer

A)  expectations theory
B)  dividend irrelevance theory
C)  residual dividend theory
D)  agency theory

Question 3

Analysis of dividend policy begins with the basic assumption that shareholder wealth maximization is the primary goal,and therefore dividends should be of primary concern even if their payment results in capital rationing.

Accepted Answer

A) True 
 B)False

Question 4

The correct order of dividend process dates is

Accepted Answer

A)  date of record,declaration date,ex-dividend date,payment date.
B)  declaration date,date of record,ex-dividend date,payment date.
C)  ex-dividend date,date of record,declaration date,payment date.
D)  declaration date,ex-dividend date,date of record,payment date.

Question 5

From the shareholders' perspective,a stock repurchase has a potential tax advantage over the payment of a cash dividend.

Accepted Answer

A) True 
 B)False

Question 6

Dryden,Corp.has 500,000 shares of common stock outstanding,a P/E ratio of 11,and $900,000 earnings available for common stockholders.The board of directors has just voted a 5:2 stock split. 
a.If you had 100 shares of stock before the split,how many shares will you have after the split? 
b.What was the total value of your investment in Dryden stock before the split? 
c.What should be the total value of your investment in Dryden stock after the split? 
d.In view of your answers to (b)and (c)above,why would a firm's management want to have a stock split?

Accepted Answer

a.Number of shares after split = 5/2 × 1...

Question 7

A justification for no dividend payments that would be pleasing to shareholders could be

Accepted Answer

A)  insufficient cash available for dividend payments.
B)  positive NPV investment projects that require the firm to retain cash for investment purposes.
C)  an investor clientele that prefers current liquidity.
D)  cash will be used for a stock dividend.

Question 8

How frequently do corporations generally pay dividends?

Accepted Answer

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

Question 9

A corporation has been paying out $1 million per year in dividends for the past several years.This year,the company wants to pay the $1 million dividend,but can't.All of the following are reasons the company cannot continue its dividend payment policy EXCEPT

Accepted Answer

A)  the company's net income this year is less than $1 million.
B)  the company's retained earnings balance at the end of the year is less than $1 million.
C)  the company's cash balance is less than $1 million.
D)  the company's liabilities exceed its assets.

Question 10

The residual dividend theory suggests that dividends will only be paid

Accepted Answer

A)  if the tax rate on capital gains is higher than the tax rate on dividends.
B)  if the corporation has more positive NPV projects than it can fund.
C)  if interest rates available to shareholders are higher than the required return on the company's stock.
D)  if current retained earnings exceed the equity portion of the firm's capital budget.

Question 11

Dividends per share divided by earnings per share equal the dividend payout ratio.

Accepted Answer

A) True 
 B)False

Question 12

Dew Drop In,Inc.announces is quarterly dividend will increase from $3.80 to $4.00.After the announcement,the price of Dew Drop In,Inc.'s stock drops.The most likely explanation is that

Accepted Answer

A)  the stock market is a perfect market.
B)  investors are irrational.
C)  investors were expecting a larger increase.
D)  Dew Drop In,Inc.'s debt ratio decreased.

Question 13

An increase in flotation costs will most likely result in which of the following?

Accepted Answer

A)  smaller dividend payments so that less external equity financing is needed
B)  larger dividend payments so shareholders are able to earn their required returns
C)  larger dividend payments to offset higher taxes paid by investors
D)  no change in dividend policies because flotation costs are paid by purchasers of common stock

Question 14

QRW,Inc.has a retained earnings balance of $2,000,000.The company reported net income of $600,000,sales of $4,000,000,and has 200,000 shares of common stock outstanding.The company announced a dividend of $2.00 per share.Therefore the company's dividend payout ratio is

Accepted Answer

A)  66.7%.
B)  50%.
C)  20%.
D)  10%.

Question 15

Which of the following is (are) false?

Accepted Answer

A)  The constant dividend payout ratio policy seeks to pay a constant percentage of earnings each year.
B)  The stable dollar dividend per share policy seeks to maintain a relatively stable percentage dividend over time.
C)  The small,regular dividend plus a year-end extra policy pays a small,regular dividend plus a year-end extra dividend in good years.
D)  The constant dividend payout ratio policy will result in more variability in dividends than the stable dollar dividend per share policy.

Question 16

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 17

LaMike owns 1,000 shares of DAS.Inc.'s common stock.The stock has a par value of $1 per share and is currently selling for $80 per share.DAS declares a 20% stock dividend.In a perfect capital market,after the dividend Sam will have

Accepted Answer

A)  1,200 shares selling for $66.67 each.
B)  1,020 shares selling for $80.80 each.
C)  1,200 shares selling for $96.00 each.
D)  1,020 shares selling for $64.00 each.

Question 18

Plantain,Inc.declared a dividend of $1 per share on March 1.The ex-dividend date is March 15th,and the payment date is April 1st.The most likely record date is

Accepted Answer

A)  February 27th.
B)  March 17th.
C)  March 13th.
D)  March 29th.

Question 19

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

Accepted Answer

A)  Stock splits create greater economic benefits to shareholders than stock dividends.
B)  Stock splits increase EPS more than stock dividends.
C)  There is no economic difference between a stock dividend and a stock split.
D)  Stock dividends create greater economic benefits to shareholders than stock splits.

Question 20

The final approval of a dividend payment comes from

Accepted Answer

A)  the controller.
B)  the president of the company.
C)  the board of directors.
D)  It is a joint decision requiring approval from all of the above.

Exam 13: Dividend Policy and Internal Financing

The correct order of dividend process dates is

Correct Answer
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A justification for no dividend payments that would be pleasing to shareholders could be

Correct Answer
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QRW,Inc.has a retained earnings balance of $2,000,000.The company reported net income of $600,000,sales of $4,000,000,and has 200,000 shares of common stock outstanding.The company announced a dividend of $2.00 per share.Therefore the company's dividend payout ratio is

Correct Answer
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Dividends per share divided by earnings per share equal the dividend payout ratio.

Correct Answer
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Analysis of dividend policy begins with the basic assumption that shareholder wealth maximization is the primary goal,and therefore dividends should be of primary concern even if their payment results in capital rationing.

Correct Answer
verified

A corporation has been paying out $1 million per year in dividends for the past several years.This year,the company wants to pay the $1 million dividend,but can't.All of the following are reasons the company cannot continue its dividend payment policy EXCEPT

Correct Answer
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The final approval of a dividend payment comes from

Correct Answer
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What is the economic difference between a stock dividend and a stock split?

Correct Answer
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The residual dividend theory suggests that dividends will only be paid

Correct Answer
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An increase in flotation costs will most likely result in which of the following?

Correct Answer
verified

Plantain,Inc.declared a dividend of $1 per share on March 1.The ex-dividend date is March 15^th,and the payment date is April 1^st.The most likely record date is

Correct Answer
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Correct Answer
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Dew Drop In,Inc.announces is quarterly dividend will increase from $3.80 to $4.00.After the announcement,the price of Dew Drop In,Inc.'s stock drops.The most likely explanation is that

Correct Answer
verified

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

Correct Answer
verified

The residual dividend theory is based on the observation that flotation costs make the cost of new common stock significantly higher than the cost of retained earnings.

Correct Answer
verified

Which of the following is (are) false?

Correct Answer
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Correct Answer
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a.Number of shares after split = 5/2 × 1...
View Answer

LaMike owns 1,000 shares of DAS.Inc.'s common stock.The stock has a par value of $1 per share and is currently selling for $80 per share.DAS declares a 20% stock dividend.In a perfect capital market,after the dividend Sam will have

Correct Answer
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How frequently do corporations generally pay dividends?

Correct Answer
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From the shareholders' perspective,a stock repurchase has a potential tax advantage over the payment of a cash dividend.

Correct Answer
verified

Exam 13: Dividend Policy and Internal Financing

The correct order of dividend process dates is

Correct AnswerverifiedShow Answer

A justification for no dividend payments that would be pleasing to shareholders could be

Correct AnswerverifiedShow Answer

QRW,Inc.has a retained earnings balance of $2,000,000.The company reported net income of $600,000,sales of $4,000,000,and has 200,000 shares of common stock outstanding.The company announced a dividend of $2.00 per share.Therefore the company's dividend payout ratio is

Correct AnswerverifiedShow Answer

Dividends per share divided by earnings per share equal the dividend payout ratio.

Correct AnswerverifiedShow Answer

Analysis of dividend policy begins with the basic assumption that shareholder wealth maximization is the primary goal,and therefore dividends should be of primary concern even if their payment results in capital rationing.

Correct AnswerverifiedShow Answer

A corporation has been paying out $1 million per year in dividends for the past several years.This year,the company wants to pay the $1 million dividend,but can't.All of the following are reasons the company cannot continue its dividend payment policy EXCEPT

Correct AnswerverifiedShow Answer

The final approval of a dividend payment comes from

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The residual dividend theory suggests that dividends will only be paid

Correct AnswerverifiedShow Answer

An increase in flotation costs will most likely result in which of the following?

Correct AnswerverifiedShow Answer

Plantain,Inc.declared a dividend of $1 per share on March 1.The ex-dividend date is March 15th,and the payment date is April 1st.The most likely record date is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Dew Drop In,Inc.announces is quarterly dividend will increase from $3.80 to $4.00.After the announcement,the price of Dew Drop In,Inc.'s stock drops.The most likely explanation is that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The residual dividend theory is based on the observation that flotation costs make the cost of new common stock significantly higher than the cost of retained earnings.

Correct AnswerverifiedShow Answer

Which of the following is (are) false?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.Number of shares after split = 5/2 × 1...View AnswerShow Answer

LaMike owns 1,000 shares of DAS.Inc.'s common stock.The stock has a par value of $1 per share and is currently selling for $80 per share.DAS declares a 20% stock dividend.In a perfect capital market,after the dividend Sam will have

Correct AnswerverifiedShow Answer

How frequently do corporations generally pay dividends?

Correct AnswerverifiedShow Answer

From the shareholders' perspective,a stock repurchase has a potential tax advantage over the payment of a cash dividend.

Correct AnswerverifiedShow Answer

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Plantain,Inc.declared a dividend of $1 per share on March 1.The ex-dividend date is March 15^th,and the payment date is April 1^st.The most likely record date is

Correct Answer
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a.Number of shares after split = 5/2 × 1...
View Answer

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