Question 1

The only definite result from a stock dividend or a stock split is

Accepted Answer

A)   an increase in the P/E ratio.
B)   an increase in the common stock's market value.
C)   an increase in the number of shares outstanding.
D)   cannot be determined from the above.

Question 2

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 3

A firm with high profitability will always have the cash flow necessary to pay high dividends.

Accepted Answer

A) True 
 B)False

Question 4

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

When investors buy a company's shares, t...

Question 5

Which of the following is the most probable way in which a shareholder will benefit from a stock split?

Accepted Answer

A)   The immediately lower share price will attract enough increased interest in the stock to cause the market price to increase on a more consistent basis.
B)   The immediately higher number of shares that an investor owns immediately increases the investor's wealth.
C)   The shareholder can use the immediately increased wealth to borrow more money to buy even more shares at the immediately lower market price.
D)   A shareholder can lose money after a stock split if the market believes that the split was an artificial way of attracting attention to a company that is not well managed.

Question 6

ZZZ Corporation had net income of $100 million last year and 50 million common shares outstanding. They declared an 8% stock dividend. Calculate EPS before and after the stock dividend.

Accepted Answer

A)   EPS before would be $2; after the dividend, EPS would be $1.85.
B)   EPS before would be $0.50; after the dividend, EPS would be $0.46.
C)   Since they made $100 million in net income, the EPS cannot change.
D)   There is not enough information to make this calculation.

Question 7

What are the effects of stock splits and stock dividends? Why are they popular?

Accepted Answer

Economically, the only effect of a stock...

Question 8

The stable dividend policy is the most common.

Accepted Answer

A) True 
 B)False

Question 9

Managers avoid cutting dividends even in response to short-term fluctuations in earnings.

Accepted Answer

A) True 
 B)False

Question 10

Pettry, Inc. expects EPS this year to be $5.25. If EPS grows at an average annual rate of 10%, and if Pettry pays 60% of its earnings as dividends, what will the expected dividend per share be in 10 years?

Accepted Answer

$5.25 (1 + 0.10)10 =...

Question 11

Compare management's motives for preferring either stock repurchases or cash dividends.

Accepted Answer

Cash dividends and repurchase offers are...

Question 12

Georges Bizet owns 10,000 shares of Pearl Co. purchased at an average price of $15 per share. The tax rate on both dividends and capital gains is 15%. Would Bizet prefer a $2.00 per share dividend or to sell 1,000 shares back to the company at $20 per share? Compute his after-tax income from each option.

Accepted Answer

If Bizet receives the dividend, his tax ...

Question 13

In practice, determinants of dividend policy include, in order of importance

Accepted Answer

A)   lack of good investment opportunities, influence of large institutional investors, maintaining a stable debt to assets ratio
B)   maintaining a constant dividend payout ratio, attracting retail investors, maintaining a consistent growth rate for dividends
C)   consistency with historical dividend policies, sustainable changes in earnings, tax burden on shareholders.
D)   wishes of large institutional investors, excess cash after investment needs are met, avoiding flotation costs for issuing new equity.

Question 14

Five years ago, Mr. Martinez purchased 1000 shares of JPM stock at $50 per share. If Mr. Martinez ' tax rate is 25%, would he prefer that the company pay a $5.00 per share dividend or offer to repurchase 100 shares at $50 per share?

Accepted Answer

A)   Pay the dividend because he would have no transaction costs.
B)   It would make no difference because he would receive $5,000 either way.
C)   Repurchase the stock because he would owe no taxes.
D)   It would make no difference because the tax rate on dividends is the same as the tax rate on capital gains.

Question 15

From the firm's point of view, a major advantage of stock repurchases over cash dividends is

Accepted Answer

A)   a commitment to maintain or increase repurchases every year.
B)   a stronger signal about the firm's financial strength.
C)   that they restrain agency costs.
D)   that the repurchases imply no commitment to pay the same amount or more every year.

Question 16

According to the Modigliani & Miller dividend indifference theorem, if a company decreased its dividend per share, an investor would be forced to sell his common stock at a depressed price.

Accepted Answer

A) True 
 B)False

Question 17

A reverse stock split, 1 for 10 for example, should result in a higher price per share.

Accepted Answer

A) True 
 B)False

Question 18

The ________ designates the date on which the stock transfer books are closed in regard to a dividend payment.

Accepted Answer

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

Question 19

Dividend policy is influenced by

Accepted Answer

A)   a company's investment opportunities.
B)   a firm's capital structure mix.
C)   a company's availability of internally generated funds.
D)   all of the above.

Question 20

Assume that Home Depot's annual dividend is $3.00 per share. This dividend would most likely be paid as

Accepted Answer

A)   $1.50 twice a year.
B)   $3.00 once a year.
C)   whenever the company had extra cash.
D)   $0.75 four times per year.

Exam 16: Dividend Policy

Five years ago, Mr. Martinez purchased 1000 shares of JPM stock at $50 per share. If Mr. Martinez ' tax rate is 25%, would he prefer that the company pay a $5.00 per share dividend or offer to repurchase 100 shares at $50 per share?

Correct Answer
verified

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

Correct Answer
verified

The ________ designates the date on which the stock transfer books are closed in regard to a dividend payment.

Correct Answer
verified

Managers avoid cutting dividends even in response to short-term fluctuations in earnings.

Correct Answer
verified

Pettry, Inc. expects EPS this year to be $5.25. If EPS grows at an average annual rate of 10%, and if Pettry pays 60% of its earnings as dividends, what will the expected dividend per share be in 10 years?

Correct Answer
verified
$5.25 (1 + 0.10)10 =...
View Answer

Assume that Home Depot's annual dividend is $3.00 per share. This dividend would most likely be paid as

Correct Answer
verified

In practice, determinants of dividend policy include, in order of importance

Correct Answer
verified

Correct Answer
verified
If Bizet receives the dividend, his tax ...
View Answer

A reverse stock split, 1 for 10 for example, should result in a higher price per share.

Correct Answer
verified

The only definite result from a stock dividend or a stock split is

Correct Answer
verified

According to the Modigliani & Miller dividend indifference theorem, if a company decreased its dividend per share, an investor would be forced to sell his common stock at a depressed price.

Correct Answer
verified

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.

Correct Answer
verified
When investors buy a company's shares, t...
View Answer

Dividend policy is influenced by

Correct Answer
verified

A firm with high profitability will always have the cash flow necessary to pay high dividends.

Correct Answer
verified

Which of the following is the most probable way in which a shareholder will benefit from a stock split?

Correct Answer
verified

Compare management's motives for preferring either stock repurchases or cash dividends.

Correct Answer
verified
Cash dividends and repurchase offers are...
View Answer

From the firm's point of view, a major advantage of stock repurchases over cash dividends is

Correct Answer
verified

The stable dividend policy is the most common.

Correct Answer
verified

What are the effects of stock splits and stock dividends? Why are they popular?

Correct Answer
verified
Economically, the only effect of a stock...
View Answer

ZZZ Corporation had net income of $100 million last year and 50 million common shares outstanding. They declared an 8% stock dividend. Calculate EPS before and after the stock dividend.

Correct Answer
verified

Exam 16: Dividend Policy

Five years ago, Mr. Martinez purchased 1000 shares of JPM stock at $50 per share. If Mr. Martinez ' tax rate is 25%, would he prefer that the company pay a $5.00 per share dividend or offer to repurchase 100 shares at $50 per share?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The ________ designates the date on which the stock transfer books are closed in regard to a dividend payment.

Correct AnswerverifiedShow Answer

Managers avoid cutting dividends even in response to short-term fluctuations in earnings.

Correct AnswerverifiedShow Answer

Pettry, Inc. expects EPS this year to be $5.25. If EPS grows at an average annual rate of 10%, and if Pettry pays 60% of its earnings as dividends, what will the expected dividend per share be in 10 years?

Correct Answerverified$5.25 (1 + 0.10)10 =...View AnswerShow Answer

Assume that Home Depot's annual dividend is $3.00 per share. This dividend would most likely be paid as

Correct AnswerverifiedShow Answer

In practice, determinants of dividend policy include, in order of importance

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIf Bizet receives the dividend, his tax ...View AnswerShow Answer

A reverse stock split, 1 for 10 for example, should result in a higher price per share.

Correct AnswerverifiedShow Answer

The only definite result from a stock dividend or a stock split is

Correct AnswerverifiedShow Answer

According to the Modigliani & Miller dividend indifference theorem, if a company decreased its dividend per share, an investor would be forced to sell his common stock at a depressed price.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedWhen investors buy a company's shares, t...View AnswerShow Answer

Dividend policy is influenced by

Correct AnswerverifiedShow Answer

A firm with high profitability will always have the cash flow necessary to pay high dividends.

Correct AnswerverifiedShow Answer

Which of the following is the most probable way in which a shareholder will benefit from a stock split?

Correct AnswerverifiedShow Answer

Compare management's motives for preferring either stock repurchases or cash dividends.

Correct AnswerverifiedCash dividends and repurchase offers are...View AnswerShow Answer

From the firm's point of view, a major advantage of stock repurchases over cash dividends is

Correct AnswerverifiedShow Answer

The stable dividend policy is the most common.

Correct AnswerverifiedShow Answer

What are the effects of stock splits and stock dividends? Why are they popular?

Correct AnswerverifiedEconomically, the only effect of a stock...View AnswerShow Answer

ZZZ Corporation had net income of $100 million last year and 50 million common shares outstanding. They declared an 8% stock dividend. Calculate EPS before and after the stock dividend.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified
$5.25 (1 + 0.10)10 =...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If Bizet receives the dividend, his tax ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When investors buy a company's shares, t...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Cash dividends and repurchase offers are...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Economically, the only effect of a stock...
View Answer

Correct Answer
verified