Question 1

Dividend policy is a form of

Accepted Answer

A)  capital budgeting policy. 
B)  dividend reinvestment policy. 
C)  working capital policy. 
D)  financing policy. 
A)  capital budgeting policy. 
B)  dividend reinvestment policy. 
C)  working capital policy. 
D)  financing policy.

Question 2

According to the bird-in-the-hand argument, current dividend payments reduce investoruncertainty and result in a higher value for the firm's stock.

Accepted Answer

A) True 
 B)False

Question 3

Paying a stock dividend_________the retained earnings account

Accepted Answer

A)  reorganizes 
B)  increases 
C)  decreases 
D)  has no effect on 
A)  reorganizes 
B)  increases 
C)  decreases 
D)  has no effect on

Question 4

A firm had net income of $1,000,000 during the year. If the firm paid a $2.50 per share dividendand there are 300,000 shares outstanding, what is the firm's retention ratio?

Accepted Answer

A)  25% 
B)  50% 
C)  75% 
D)  cannot be determined with the information provided 
A)  25% 
B)  50% 
C)  75% 
D)  cannot be determined with the information provided

Question 5

According to Modigliani and Miller, a firm's value is determined solely by the earning power and risk of its assets and that the manner in which it splits its earnings stream between dividends and internally retained funds does not affect this value.

Accepted Answer

A) True 
 B)False

Question 6

A stock split has_________effect on the firm's capital structure.

Accepted Answer

A)  a detrimental 
B)  no 
C)  little 
D)  a measurable 
A)  a detrimental 
B)  no 
C)  little 
D)  a measurable

Question 7

If the firm's earnings remain constant and total cash dividends do not increase, a stock dividend results in a lower per-share market value for the firm's stock.

Accepted Answer

A) True 
 B)False

Question 8

According to the residual theory of dividends, if the firm's equity need exceeds the amount of retained earnings, the firm would

Accepted Answer

A)  not need to consider its dividend policy. 
B)  pay no cash dividends. 
C)  borrow to pay the cash dividend. 
D)  sell additional stock to pay the cash dividend. 
A)  not need to consider its dividend policy. 
B)  pay no cash dividends. 
C)  borrow to pay the cash dividend. 
D)  sell additional stock to pay the cash dividend.

Question 9

Gordon's "bird-in-the-hand" argument suggests that

Accepted Answer

A)  firms should have a 100 percent payout policy. 
B)  the market value of the firm is unaffected by dividend policy. 
C)  shareholders are generally risk averse and attach less risk to current dividends. 
D)  dividends are irrelevant. 
A)  firms should have a 100 percent payout policy. 
B)  the market value of the firm is unaffected by dividend policy. 
C)  shareholders are generally risk averse and attach less risk to current dividends. 
D)  dividends are irrelevant.

Question 10

When paying dividends, three rules must be followed.three rules.

Accepted Answer

A)  net profits rule 
B)  prior claim rule 
C)  capital impairment rule 
D)  insolvency rule 
A)  net profits rule 
B)  prior claim rule 
C)  capital impairment rule 
D)  insolvency rule

Question 11

Constant-pay-out-ratio dividend policy is a dividend policy based on the payment to existing owners of a dividend in the form of stock as a certain percentage of the firms total number of stocks outstanding in each dividend period.

Accepted Answer

A) True 
 B)False

Question 12

Stock repurchase can be viewed as a cash dividend.

Accepted Answer

A) True 
 B)False

Question 13

Mr. R. owns 20,000 shares of ABC Corporation stock. The company is planning to issue a stock dividend. Before the dividend, Mr. R. owned 10 percent of the outstanding stock, which had a market value of $200,000, or $10 per share. Upon receiving the 10 percent stock dividend the value of his shares is _________.

Accepted Answer

A)  $210,000 
B)  $200,000 
C)  $220,000 
D)  greater, but cannot be determined 
A)  $210,000 
B)  $200,000 
C)  $220,000 
D)  greater, but cannot be determined

Question 14

Since lenders are generally reluctant to make loans to a firm to pay dividends, the firm's ability to pay cash dividends is generally constrained by the amount of excess cash available.

Accepted Answer

A) True 
 B)False

Question 15

Because retained earnings are a form of internal financing, the dividend decision can significantly affect the firm's external financing requirements.

Accepted Answer

A) True 
 B)False

Question 16

Reverse stock splits are initiated when a stock is selling at too low a price to appear respectable.

Accepted Answer

A) True 
 B)False

Question 17

In Canada, capital gains are taxed more favourably than dividend income.

Accepted Answer

A) True 
 B)False

Question 18

A company's current equity value is $2 million. If the company splits the stock 2 for 1, the equityvalue will

Accepted Answer

A)  fall to $1 million. 
B)  increase to $4 million. 
C)  increase to $4 million for about a week and fall back to normal levels. 
D)  remain unchanged at $2 million. 
A)  fall to $1 million. 
B)  increase to $4 million. 
C)  increase to $4 million for about a week and fall back to normal levels. 
D)  remain unchanged at $2 million.

Question 19

A firm's 1,000,000 shares have a market value of $500,000. If the firm reverse splits its stock 1 for 4, the per share value will be $2 after the split.

Accepted Answer

A) True 
 B)False

Question 20

A firm has current aftertax earnings of $1,000,000 and has declared a cash dividend of $400,000. Thefirm's dividend pay-out ratio is

Accepted Answer

A)  40 percent. 
B)  4.0 percent. 
C)  2.5 percent. 
D)  2.0 percent. 
A)  40 percent. 
B)  4.0 percent. 
C)  2.5 percent. 
D)  2.0 percent.

Dividend policy is a form of

According to the bird-in-the-hand argument, current dividend payments reduce investoruncertainty and result in a higher value for the firm's stock.

Paying a stock dividend_________the retained earnings account

A firm had net income of $1,000,000 during the year. If the firm paid a $2.50 per share dividendand there are 300,000 shares outstanding, what is the firm's retention ratio?

According to Modigliani and Miller, a firm's value is determined solely by the earning power and risk of its assets and that the manner in which it splits its earnings stream between dividends and internally retained funds does not affect this value.

A stock split has_________effect on the firm's capital structure.

If the firm's earnings remain constant and total cash dividends do not increase, a stock dividend results in a lower per-share market value for the firm's stock.

According to the residual theory of dividends, if the firm's equity need exceeds the amount of retained earnings, the firm would

Gordon's "bird-in-the-hand" argument suggests that

When paying dividends, three rules must be followed.three rules.

Constant-pay-out-ratio dividend policy is a dividend policy based on the payment to existing owners of a dividend in the form of stock as a certain percentage of the firms total number of stocks outstanding in each dividend period.

Stock repurchase can be viewed as a cash dividend.

Since lenders are generally reluctant to make loans to a firm to pay dividends, the firm's ability to pay cash dividends is generally constrained by the amount of excess cash available.

Because retained earnings are a form of internal financing, the dividend decision can significantly affect the firm's external financing requirements.

Reverse stock splits are initiated when a stock is selling at too low a price to appear respectable.

In Canada, capital gains are taxed more favourably than dividend income.

A company's current equity value is $2 million. If the company splits the stock 2 for 1, the equityvalue will

A firm's 1,000,000 shares have a market value of $500,000. If the firm reverse splits its stock 1 for 4, the per share value will be $2 after the split.

A firm has current aftertax earnings of $1,000,000 and has declared a cash dividend of $400,000. Thefirm's dividend pay-out ratio is

Overview of Corporate Finance

Financial Statements, Cash Flows, and Taxes

Financial Statement Analysis

Financial Planning and Forecasting

Financial Markets, Institutions, and Securities

Time Value of Money

Risk and Return

Valuation of Financial Securities

The Cost of Capital

Leverage and Capital Structure

Capital Budgeting: Principles and Techniques

Dealing With Project Risk and Other Topics in Capital Budgeting

Working Capital and Management of Current Assets

Management of Current Liabilities

Lease Financing: Concepts and Techniques

Corporate Securities, Derivatives, and Swaps

Mergers and Acquisitions, and Business Failure

International Corporate Finance

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Exam 11: Dividend Policy

Dividend policy is a form of

According to the bird-in-the-hand argument, current dividend payments reduce investoruncertainty and result in a higher value for the firm's stock.

Paying a stock dividend_________the retained earnings account

A firm had net income of $1,000,000 during the year. If the firm paid a $2.50 per share dividendand there are 300,000 shares outstanding, what is the firm's retention ratio?

According to Modigliani and Miller, a firm's value is determined solely by the earning power and risk of its assets and that the manner in which it splits its earnings stream between dividends and internally retained funds does not affect this value.

A stock split has_________effect on the firm's capital structure.

If the firm's earnings remain constant and total cash dividends do not increase, a stock dividend results in a lower per-share market value for the firm's stock.

According to the residual theory of dividends, if the firm's equity need exceeds the amount of retained earnings, the firm would

Gordon's "bird-in-the-hand" argument suggests that

When paying dividends, three rules must be followed.three rules.

Constant-pay-out-ratio dividend policy is a dividend policy based on the payment to existing owners of a dividend in the form of stock as a certain percentage of the firms total number of stocks outstanding in each dividend period.

Stock repurchase can be viewed as a cash dividend.

Since lenders are generally reluctant to make loans to a firm to pay dividends, the firm's ability to pay cash dividends is generally constrained by the amount of excess cash available.

Because retained earnings are a form of internal financing, the dividend decision can significantly affect the firm's external financing requirements.

Reverse stock splits are initiated when a stock is selling at too low a price to appear respectable.

In Canada, capital gains are taxed more favourably than dividend income.

A company's current equity value is $2 million. If the company splits the stock 2 for 1, the equityvalue will

A firm's 1,000,000 shares have a market value of $500,000. If the firm reverse splits its stock 1 for 4, the per share value will be $2 after the split.

A firm has current aftertax earnings of $1,000,000 and has declared a cash dividend of $400,000. Thefirm's dividend pay-out ratio is

Overview of Corporate Finance

Financial Statements, Cash Flows, and Taxes

Financial Statement Analysis

Financial Planning and Forecasting

Financial Markets, Institutions, and Securities

Time Value of Money

Risk and Return

Valuation of Financial Securities

The Cost of Capital

Leverage and Capital Structure

Capital Budgeting: Principles and Techniques

Dealing With Project Risk and Other Topics in Capital Budgeting

Working Capital and Management of Current Assets

Management of Current Liabilities

Lease Financing: Concepts and Techniques

Corporate Securities, Derivatives, and Swaps

Mergers and Acquisitions, and Business Failure

International Corporate Finance

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