Question 1

The duty to invest money prudently is called the:

Accepted Answer

A)  Fiduciary responsibility. 
B)  Clientele effect. 
C)  Information content effect. 
D)  Liquidation responsibility. 
E)  Shareholder right. 
A)  Fiduciary responsibility. 
B)  Clientele effect. 
C)  Information content effect. 
D)  Liquidation responsibility. 
E)  Shareholder right. A

Question 2

BDJ, Inc. has 31,000 shares of stock outstanding with a market price of $15 per share. If net income for the year is $155,000 and the retention ratio is 80%, what is the dividend yield on BDJ Inc.'s stock?

Accepted Answer

A)  3.4% 
B)  3.7% 
C)  5.5% 
D)  6.7% 
E)  8.3% 
A)  3.4% 
B)  3.7% 
C)  5.5% 
D)  6.7% 
E)  8.3% D

Question 3

Bakersfield Industries has a market value equal to its book value. Currently, the firm has excess cash of $750 and other assets of $19,400. Equity is worth $11,500. Bakersfield has 450 shares of stock outstanding and net income of $630. The firm has decided to pay out all of its excess cash as a cash dividend. What will the earnings per share be after the dividend is paid?

Accepted Answer

A)  -$.27 
B)  $0.00 
C)  $.73 
D)  $1.01 
E)  $1.40 
A)  -$.27 
B)  $0.00 
C)  $.73 
D)  $1.01 
E)  $1.40 E

Question 4

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 10% stock dividend. What is the stock's new price per share after the dividend?

Accepted Answer

A)  $10.48 
B)  $10.80 
C)  $11.24 
D)  $12.09 
E)  $13.00 
A)  $10.48 
B)  $10.80 
C)  $11.24 
D)  $12.09 
E)  $13.00

Question 5

Given a compromise dividend policy, firms prefer limiting NPV projects to pay dividends.

Accepted Answer

A) True 
 B)False

Question 6

The Mining Co. has 110,000 shares of stock outstanding. The current market value of the firm is $5.5 million. The company has retained earnings of $1.8 million, paid in surplus of $2.2 million, and a common stock account value of $.11 million. The company is planning a 5-for-1 stock split. What will the retained earnings account value be after the split?

Accepted Answer

A)  $0.36 million 
B)  $0.45 million 
C)  $1.8 million 
D)  $7.2 million 
E)  $9.0 million 
A)  $0.36 million 
B)  $0.45 million 
C)  $1.8 million 
D)  $7.2 million 
E)  $9.0 million

Question 7

In general, investors prefer stocks with large dividends to those with small dividends.

Accepted Answer

A) True 
 B)False

Question 8

A liquidating dividend is defined as the dividend which results from a(n):

Accepted Answer

A)  Merger. 
B)  Reverse stock split. 
C)  Stock split. 
D)  Sale of part or all of the firm. 
E)  Accumulation of excess cash. 
A)  Merger. 
B)  Reverse stock split. 
C)  Stock split. 
D)  Sale of part or all of the firm. 
E)  Accumulation of excess cash.

Question 9

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

Question 10

Which one of the following is considered to be the primary goal of a compromise dividend policy?

Accepted Answer

A)  The avoidance of cutting back on positive net present value projects. 
B)  Maintaining a constant debt-equity ratio. 
C)  The avoidance of reducing the dividend amount. 
D)  Maintaining a target dividend payout ratio. 
E)  Avoiding the need to sell new equity. 
A)  The avoidance of cutting back on positive net present value projects. 
B)  Maintaining a constant debt-equity ratio. 
C)  The avoidance of reducing the dividend amount. 
D)  Maintaining a target dividend payout ratio. 
E)  Avoiding the need to sell new equity.

Question 11

Positive NPV projects enhance shareholder wealth. However, in some cases the payment of dividends limits the number of positive NPV projects a firm can take. Why, then, shouldn't shareholders prefer a residual dividend policy?

Accepted Answer

This question makes the simple assumptio

Question 12

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

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. 
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 13

You own 100 shares of stock in SplitsVille Corp. Over the past three days, SplitsVille has done the following: It first split its stock 2-for-1. One day later it declared a 100% stock dividend. After one more day it executed a 1-for-4 reverse split. If you did not buy or sell any shares in the firm over this period, how many shares of stock did you have after EACH transaction? What would you assume happened to the price of the firm's stock as a result of these activities?

Accepted Answer

This requires students to demonstrate th

Question 14

It has been shown that, in the absence of taxes and other market imperfections, firm value will be unaffected by dividend policy. Explain the logic behind this conclusion. Next, describe three real-world factors that may cause one dividend policy to be preferable to another.

Accepted Answer

The first part of the question asks the

Question 15

An investor who does not need current income would likely prefer a firm with a high dividend payout rate.

Accepted Answer

A) True 
 B)False

Question 16

A reverse stock split is sometimes undertaken by a firm that wishes to make its stock price more appealing to the average investor.

Accepted Answer

A) True 
 B)False

Question 17

Morgan's has 9,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $16 per share. The balance sheet shows $9,000 in the common stock account, $62,000 in the capital in excess of par account, and $40,500 in the retained earnings account. The firm just announced a 100 percent (large) stock dividend. What is the value of the capital in excess of par account after the dividend?

Accepted Answer

A)  $50,000 
B)  $62,000 
C)  $71,000 
D)  $90,000 
E)  $124,000 
A)  $50,000 
B)  $62,000 
C)  $71,000 
D)  $90,000 
E)  $124,000

Question 18

Investors' dislike of uncertainty is a factor that favor a high dividend policy.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is a reason for a high-dividend-payout policy?

Accepted Answer

A)  Dividends are generally taxed at a lower rate than capital gains. 
B)  All investors prefer high dividend payments over low dividend payments. 
C)  Cash payments today are preferred over uncertain payments in the future. 
D)  More cash is left in the company for investing in company projects. 
E)  High dividends tend to benefit companies in the long-term. 
A)  Dividends are generally taxed at a lower rate than capital gains. 
B)  All investors prefer high dividend payments over low dividend payments. 
C)  Cash payments today are preferred over uncertain payments in the future. 
D)  More cash is left in the company for investing in company projects. 
E)  High dividends tend to benefit companies in the long-term.

Question 20

Provide a definition for the term trading range.

Accepted Answer

Price range between

The duty to invest money prudently is called the:

BDJ, Inc. has 31,000 shares of stock outstanding with a market price of $15 per share. If net income for the year is $155,000 and the retention ratio is 80%, what is the dividend yield on BDJ Inc.'s stock?

Given a compromise dividend policy, firms prefer limiting NPV projects to pay dividends.

In general, investors prefer stocks with large dividends to those with small dividends.

A liquidating dividend is defined as the dividend which results from a(n):

Which one of the following is considered to be the primary goal of a compromise dividend policy?

Positive NPV projects enhance shareholder wealth. However, in some cases the payment of dividends limits the number of positive NPV projects a firm can take. Why, then, shouldn't shareholders prefer a residual dividend policy?

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

It has been shown that, in the absence of taxes and other market imperfections, firm value will be unaffected by dividend policy. Explain the logic behind this conclusion. Next, describe three real-world factors that may cause one dividend policy to be preferable to another.

An investor who does not need current income would likely prefer a firm with a high dividend payout rate.

A reverse stock split is sometimes undertaken by a firm that wishes to make its stock price more appealing to the average investor.

Investors' dislike of uncertainty is a factor that favor a high dividend policy.

Which of the following is a reason for a high-dividend-payout policy?

Provide a definition for the term trading range.

Introduction to Corporate Finance

Financial Statements, Cash Flow, and Taxes

Working With Financial Statements

Long-Term Financial Planning and Corporate Growth

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Enterprise Risk Management

Options and Corporate Securities

Behavioural Finance: Implications for Financial Management

Filters

Exam 17: Dividends and Dividend Policy

The duty to invest money prudently is called the:

BDJ, Inc. has 31,000 shares of stock outstanding with a market price of $15 per share. If net income for the year is $155,000 and the retention ratio is 80%, what is the dividend yield on BDJ Inc.'s stock?

Given a compromise dividend policy, firms prefer limiting NPV projects to pay dividends.

In general, investors prefer stocks with large dividends to those with small dividends.

A liquidating dividend is defined as the dividend which results from a(n):

Which one of the following is considered to be the primary goal of a compromise dividend policy?

Positive NPV projects enhance shareholder wealth. However, in some cases the payment of dividends limits the number of positive NPV projects a firm can take. Why, then, shouldn't shareholders prefer a residual dividend policy?

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

It has been shown that, in the absence of taxes and other market imperfections, firm value will be unaffected by dividend policy. Explain the logic behind this conclusion. Next, describe three real-world factors that may cause one dividend policy to be preferable to another.

An investor who does not need current income would likely prefer a firm with a high dividend payout rate.

A reverse stock split is sometimes undertaken by a firm that wishes to make its stock price more appealing to the average investor.

Investors' dislike of uncertainty is a factor that favor a high dividend policy.

Which of the following is a reason for a high-dividend-payout policy?

Provide a definition for the term trading range.

Introduction to Corporate Finance

Financial Statements, Cash Flow, and Taxes

Working With Financial Statements

Long-Term Financial Planning and Corporate Growth

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Enterprise Risk Management

Options and Corporate Securities

Behavioural Finance: Implications for Financial Management

Filters