Question 1

European firms tend to pay out more dividends than U.S.firms.

Accepted Answer

A) True 
 B)False

Question 2

If investors expect a 15% rate of return on their investment,they will be indifferent between a $1.00 dividend received immediately or

Accepted Answer

A)  $1.15 received at the end of the year.
B)  $1.00 received later.
C)  $0.87 received at the end of the year.
D)  $1.00 increase in the share price a year later.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Trendy Corp.recently declared a 10% share dividend.As of the date of the announcement,Trendy had 10 million shares outstanding,which were selling on the NYSE for $50 per share.An accounting entry is required on the balance sheet in order to transfer an amount from retained earnings to the ordinary shares and additional paid-in capital accounts.What is the dollar amount of retained earnings that will be transferred from retained earnings to the ordinary shares account as the result of the share dividend? Assume that the par value of Trendy is $2 per share.

Accepted Answer

A)  $2 million
B)  $50 million
C)  $45.45 million
D)  $12.5 million

Question 5

Groups of investors who prefer one distribution method over another are known as

Accepted Answer

A)  pressure groups.
B)  return chasers.
C)  dividend clienteles.
D)  retirees.

Question 6

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

Accepted Answer

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

Question 7

The dividend policy that states smoothing of the dividend stream in order to minimise the effect of company reversals is called the

Accepted Answer

A)  increasing-stream hypothesis of dividend policy.
B)  stable dividend policy.
C)  clientele effect policy.
D)  residual payout policy.

Question 8

Which of the following motivates corporations to split their ordinary shares?

Accepted Answer

A)  To keep the price of the firm's ordinary shares within an optimum price range
B)  To increase retained earnings
C)  To reallocate capital to shareholders
D)  To narrow ownership of the firm A

Question 9

Compare the Stable Dividend Payout to the Residual Dividend Policy.

Accepted Answer

A stable dividend payout policy tries to avoid unpleasant surprises to the company's shareholder clientele who may depend on the dividends to meet their income needs.Companies that follow this policy consider the predictability of dividends more important than the size or payout ratio and only increase dividends when they are quite certain that they can maintain the increased payout.A company that followed a residual dividend policy would only pay a dividend after all operational and investment needs had been met.Such a policy would lead to large year-to-year fluctuations in the dollar amount of dividends.The residual dividend policy is much less popular with investors and therefore with managers as well.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Reducing dividends will usually have a negative impact on the share price.

Accepted Answer

A) True 
 B)False  True

Question 12

The existence of dividend clienteles suggest that firms can change their dividend policy frequently with no potential adverse effect on the firm.

Accepted Answer

A) True 
 B)False

Question 13

Explain the significance of each of the following:
a.announcement date
b.ex-dividend date
c.record date
d.payment date

Accepted Answer

a.announcement date: Date at which the B...

Question 14

As a firm's investment opportunities increase,the dividend payout ratio should increase.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following describes the effect of a share dividend?

Accepted Answer

A)  A share dividend immediately increases the market price of a share.
B)  A share dividend immediately decreases the paid-in capital account.
C)  A share dividend immediately increases the number of shares outstanding.
D)  A share dividend indicates that the company must be short on cash.

Question 16

According to the residual theory of dividends

Accepted Answer

A)  dividends are to be paid out only after investment financing needs have been met.
B)  earnings remaining after payment of preference share dividends should be paid to ordinary shareholders.
C)  dividend payments are a constant percentage of EPS.
D)  a dividend is the residual above the payout ratio.

Question 17

Kelly owns 10,000 shares in McCormick Spices,which currently has 500,000 shares outstanding.The shares sell for $86 on the open market.McCormick's management has decided on a 2-1 split.
a.Will Kelly's financial position alter after the split,assuming that the shares will fall proportionately?
b.Assuming only a 35% fall on each share,what will be Kelly's value after the split?

Accepted Answer

McCormick Spices Corporation - Share Spl...

Question 18

What might an investor reasonably expect from a company with excess cash and few internal investment growth opportunities?

Accepted Answer

A)  The company will buy Treasury notes with all the excess cash.
B)  The company will split its shares.
C)  The company will declare a share dividend.
D)  The company will pay a cash dividend or buy back some of its own shares.

Question 19

Dividend payouts have the effect of lowering the company's debt to equity ratio.

Accepted Answer

A) True 
 B)False

Question 20

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 =...

Exam 16: Dividend Policy

European firms tend to pay out more dividends than U.S.firms.

Correct Answer
verified

If investors expect a 15% rate of return on their investment,they will be indifferent between a $1.00 dividend received immediately or

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Groups of investors who prefer one distribution method over another are known as

Correct Answer
verified

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

Correct Answer
verified

The dividend policy that states smoothing of the dividend stream in order to minimise the effect of company reversals is called the

Correct Answer
verified

Which of the following motivates corporations to split their ordinary shares?

Correct Answer
verified
A

Compare the Stable Dividend Payout to the Residual Dividend Policy.

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

Correct Answer
verified

Reducing dividends will usually have a negative impact on the share price.

Correct Answer
verified
True

The existence of dividend clienteles suggest that firms can change their dividend policy frequently with no potential adverse effect on the firm.

Correct Answer
verified

Explain the significance of each of the following: a.announcement date b.ex-dividend date c.record date d.payment date

Correct Answer
verified
a.announcement date: Date at which the B...
View Answer

As a firm's investment opportunities increase,the dividend payout ratio should increase.

Correct Answer
verified

Which of the following describes the effect of a share dividend?

Correct Answer
verified

According to the residual theory of dividends

Correct Answer
verified

Correct Answer
verified
McCormick Spices Corporation - Share Spl...
View Answer

What might an investor reasonably expect from a company with excess cash and few internal investment growth opportunities?

Correct Answer
verified

Dividend payouts have the effect of lowering the company's debt to equity ratio.

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

Exam 16: Dividend Policy

European firms tend to pay out more dividends than U.S.firms.

Correct AnswerverifiedShow Answer

If investors expect a 15% rate of return on their investment,they will be indifferent between a $1.00 dividend received immediately or

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Groups of investors who prefer one distribution method over another are known as

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The dividend policy that states smoothing of the dividend stream in order to minimise the effect of company reversals is called the

Correct AnswerverifiedShow Answer

Which of the following motivates corporations to split their ordinary shares?

Correct AnswerverifiedA

Compare the Stable Dividend Payout to the Residual Dividend Policy.

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

Correct AnswerverifiedShow Answer

Reducing dividends will usually have a negative impact on the share price.

Correct AnswerverifiedTrue

The existence of dividend clienteles suggest that firms can change their dividend policy frequently with no potential adverse effect on the firm.

Correct AnswerverifiedShow Answer

Explain the significance of each of the following: a.announcement date b.ex-dividend date c.record date d.payment date

Correct Answerverifieda.announcement date: Date at which the B...View AnswerShow Answer

As a firm's investment opportunities increase,the dividend payout ratio should increase.

Correct AnswerverifiedShow Answer

Which of the following describes the effect of a share dividend?

Correct AnswerverifiedShow Answer

According to the residual theory of dividends

Correct AnswerverifiedShow Answer

Correct AnswerverifiedMcCormick Spices Corporation - Share Spl...View AnswerShow Answer

What might an investor reasonably expect from a company with excess cash and few internal investment growth opportunities?

Correct AnswerverifiedShow Answer

Dividend payouts have the effect of lowering the company's debt to equity ratio.

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

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A

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True

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a.announcement date: Date at which the B...
View Answer

Correct Answer
verified

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Correct Answer
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Correct Answer
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McCormick Spices Corporation - Share Spl...
View Answer

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