Exam 11: Dividend Policy

Purchasers of a stock selling ex-dividend receive the current dividend.

When common stock is repurchased and retired, the underlying motive is to

The capital impairment restrictions are established to

Open-market repurchases must be completed within _________year(s) and are restricted to no more than _________percent of the shares outstanding.

A stock split commonly increases the number of shares outstanding and the stock's per share par value.

A firm paid a $2 dividend in 1999. If the firm has a policy of increasing dividends by 4% per year,the dividend in 2003 will be

Often, the firm's ability to pay cash dividends is constrained by restrictive provisions in a loan agreement.

In Canada, open-market share repurchases are called

The residual theory of dividends implies that if the firm cannot earn a return (IRR) from investment of its earnings that is in excess of cost (WMCC), it should distribute the earnings by paying dividends to stockholders.

When purchasing outstanding shares of common stock a firm can utilize all of the following methods EXCEPT

The factors involved in setting a dividend policy include all of the following EXCEPT

At a firm's quarterly dividend meeting held December 5, the directors declared a $1.50 per sharecash dividend to be paid to the holders of record on Monday, January 1. Before the dividend wasdeclared, the firm's accumulated retained earnings balance and cash balance were $1,280,000 and$30,000 respectively. The firm has 10,000 shares of common stock outstanding. On January 2, the cash, dividends payable, and retained earnings accounts had balances of

The advantage of using the low-regular-and-extra dividend policy is that

The payment of a stock dividend is a shifting of funds between capital accounts rather than a use of funds.

Due to clientele effect, Modigliani and Miller argue that the shareholders get what they expect and, thus, the value of the firm's stock is unaffected by dividend policy.

Enhancement of shareholder value through stock repurchase is achieved by

A dividend cut usually

Generally, legal constraints prohibit the payment of cash dividends until a certain level of earnings has been achieved or limit the amount of dividends paid to a certain dollar amount or percentage of earnings.

Stock dividends are_________costly to issue than cash dividends.

Generally as long as earnings remain constant, the repurchase of shares reduces the number of outstanding shares, raising the earnings per share and therefore the market price per share.