Question 1

A firm's dividend policy provides information pertaining to the firm's payout ratio and its stability.

Accepted Answer

A) True 
 B)False

Question 2

The residual theory of dividends connects a firm's dividend policy and its level of capital investments.

Accepted Answer

A) True 
 B)False

Question 3

A corporation decides to cut its dividend from $2 per share to $1.50 per share.Give two rationales/theories to explain why this action may cause the stock price to decrease and two rationales/theories to explain why this action may cause the stock price to increase.

Accepted Answer

Decrease: Information Effect - the decre

Question 4

A stock repurchase plan can be viewed as both a financing decision and an investment decision.

Accepted Answer

A) True 
 B)False

Question 5

According to the "bird-in-the-hand" dividend theory,the required return for a stock that pays its entire return from dividends is higher than the required return for a high-growth stock that pays no dividend.

Accepted Answer

A) True 
 B)False

Question 6

You are a retired worker whose income is derived from your company pension plan and social security.However,you are highly dependent upon the income generated from your 401(k)plan,which is heavily weighted in stocks that pay substantial dividends.Which of the following dividend policies would you prefer?

Accepted Answer

A)  Constant dividend payment ratio 
B)  Stable dollar dividend per share 
C)  Small, regular dividend plus a year-end extra 
D)  Any of the above would be equally desirable 
A)  Constant dividend payment ratio 
B)  Stable dollar dividend per share 
C)  Small, regular dividend plus a year-end extra 
D)  Any of the above would be equally desirable

Question 7

A firm's dividend policy includes two basic components:
 the dividend payout ratio and dividend stability.

Accepted Answer

A) True 
 B)False

Question 8

The difference between the capital gains tax rate and the income tax rate is an incentive for

Accepted Answer

A)  firms never to split their stock. 
B)  firms to declare more stock dividends. 
C)  firms to pay more earnings as dividends. 
D)  firms to retain more earnings. 
A)  firms never to split their stock. 
B)  firms to declare more stock dividends. 
C)  firms to pay more earnings as dividends. 
D)  firms to retain more earnings.

Question 9

Which of the following statements would be consistent with the Dividend Irrelevance Theory?

Accepted Answer

A)  There is no relationship between a firm's dividend policy and the value of its common stock. 
B)  Perfect capital markets are assumed to exist which allow investors to buy and sell stock without incurring any transaction costs. 
C)  Investors are indifferent whether stock returns come from dividend income or capital gains income. 
D)  All of the above. 
A)  There is no relationship between a firm's dividend policy and the value of its common stock. 
B)  Perfect capital markets are assumed to exist which allow investors to buy and sell stock without incurring any transaction costs. 
C)  Investors are indifferent whether stock returns come from dividend income or capital gains income. 
D)  All of the above.

Question 10

There is no difference on an economic basis between a stock dividend and a stock split.

Accepted Answer

A) True 
 B)False

Question 11

The viewpoint that high dividends increase stock values is based on which of the following principles?

Accepted Answer

A)  Time Value of Money 
B)  Risk-Return Trade-Off 
C)  Taxes Bias Business Decisions 
D)  The Agency Problem 
A)  Time Value of Money 
B)  Risk-Return Trade-Off 
C)  Taxes Bias Business Decisions 
D)  The Agency Problem

Question 12

Under the ideal conditions of perfect capital markets,dividend policy has no effect upon share price.

Accepted Answer

A) True 
 B)False

Question 13

CDE Corporation declared a $2 per share dividend on October 1.The date of record is October 20th,the ex-dividend date is October 18th,and the payment date is October 31st.Joe owns a share of stock on October 1.Joe sells his share to Mary on October 19th,and Mary sells the share to Tom on October 29th. Who will receive the dividend?

Accepted Answer

A)  Joe 
B)  Mary 
C)  Tom 
D)  No one, since the share was not owned consistently by one person over the period. 
A)  Joe 
B)  Mary 
C)  Tom 
D)  No one, since the share was not owned consistently by one person over the period.

Question 14

Assume that Harris,Inc.has 10,000,000 common shares outstanding that have a par value of $2 per share.The stock is currently trading for $30 per share.The firm reported a net profit after-tax of $25,000,000.All else equal,what will happen to earnings per share if the company issues a 10% stock dividend?

Accepted Answer

A)  Earnings per share will remain the same since a stock dividend does not create an expense. 
B)  Earnings per share will increase because the dividend increases the value of the company. 
C)  Earnings per share will decrease because the number of shares outstanding will go up. 
D)  The impact cannot be determined without additional information on the new price per share. 
A)  Earnings per share will remain the same since a stock dividend does not create an expense. 
B)  Earnings per share will increase because the dividend increases the value of the company. 
C)  Earnings per share will decrease because the number of shares outstanding will go up. 
D)  The impact cannot be determined without additional information on the new price per share.

Question 15

Dividends per share divided by earnings per share equal the dividend payout ratio.

Accepted Answer

A) True 
 B)False

Question 16

A 100% stock dividend and a 2-for-1 stock split will result in the same number of shares of stock being held by investors after the transaction is completed.

Accepted Answer

A) True 
 B)False

Question 17

In order to reduce agency costs,managers may decrease dividends,thus shifting the focus of investors to future capital gains than can only be attained by a well-run corporation.

Accepted Answer

A) True 
 B)False

Question 18

The information effect suggests dividend policy matters because dividends act as a persuasive communications tool,signaling investors about the financial condition of the firm.

Accepted Answer

A) True 
 B)False

Question 19

If John owns 5% of XYZ corporation before its 2 for 1 stock split,John will own 5% of XYZ corporation after the stock split as well.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is the most valid reason to split a stock that has a market price of $110 per share?

Accepted Answer

A)  Conserve cash. 
B)  Reduce the market price to a more popular trading range. 
C)  Obtain additional capital. 
D)  Increase investor's net worth. 
A)  Conserve cash. 
B)  Reduce the market price to a more popular trading range. 
C)  Obtain additional capital. 
D)  Increase investor's net worth.

A firm's dividend policy provides information pertaining to the firm's payout ratio and its stability.

The residual theory of dividends connects a firm's dividend policy and its level of capital investments.

A corporation decides to cut its dividend from $2 per share to $1.50 per share.Give two rationales/theories to explain why this action may cause the stock price to decrease and two rationales/theories to explain why this action may cause the stock price to increase.

A stock repurchase plan can be viewed as both a financing decision and an investment decision.

According to the "bird-in-the-hand" dividend theory,the required return for a stock that pays its entire return from dividends is higher than the required return for a high-growth stock that pays no dividend.

A firm's dividend policy includes two basic components: the dividend payout ratio and dividend stability.

The difference between the capital gains tax rate and the income tax rate is an incentive for

Which of the following statements would be consistent with the Dividend Irrelevance Theory?

There is no difference on an economic basis between a stock dividend and a stock split.

The viewpoint that high dividends increase stock values is based on which of the following principles?

Under the ideal conditions of perfect capital markets,dividend policy has no effect upon share price.

Dividends per share divided by earnings per share equal the dividend payout ratio.

A 100% stock dividend and a 2-for-1 stock split will result in the same number of shares of stock being held by investors after the transaction is completed.

In order to reduce agency costs,managers may decrease dividends,thus shifting the focus of investors to future capital gains than can only be attained by a well-run corporation.

The information effect suggests dividend policy matters because dividends act as a persuasive communications tool,signaling investors about the financial condition of the firm.

If John owns 5% of XYZ corporation before its 2 for 1 stock split,John will own 5% of XYZ corporation after the stock split as well.

Which of the following is the most valid reason to split a stock that has a market price of $110 per share?

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Short-Term Financial Planning

Working-Capital Management

Current Asset Management

International Business Finance

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Exam 13: Dividend Policy and Internal Financing

A firm's dividend policy provides information pertaining to the firm's payout ratio and its stability.

The residual theory of dividends connects a firm's dividend policy and its level of capital investments.

A corporation decides to cut its dividend from $2 per share to $1.50 per share.Give two rationales/theories to explain why this action may cause the stock price to decrease and two rationales/theories to explain why this action may cause the stock price to increase.

A stock repurchase plan can be viewed as both a financing decision and an investment decision.

According to the "bird-in-the-hand" dividend theory,the required return for a stock that pays its entire return from dividends is higher than the required return for a high-growth stock that pays no dividend.

A firm's dividend policy includes two basic components: the dividend payout ratio and dividend stability.

The difference between the capital gains tax rate and the income tax rate is an incentive for

Which of the following statements would be consistent with the Dividend Irrelevance Theory?

There is no difference on an economic basis between a stock dividend and a stock split.

The viewpoint that high dividends increase stock values is based on which of the following principles?

Under the ideal conditions of perfect capital markets,dividend policy has no effect upon share price.

Dividends per share divided by earnings per share equal the dividend payout ratio.

A 100% stock dividend and a 2-for-1 stock split will result in the same number of shares of stock being held by investors after the transaction is completed.

In order to reduce agency costs,managers may decrease dividends,thus shifting the focus of investors to future capital gains than can only be attained by a well-run corporation.

The information effect suggests dividend policy matters because dividends act as a persuasive communications tool,signaling investors about the financial condition of the firm.

If John owns 5% of XYZ corporation before its 2 for 1 stock split,John will own 5% of XYZ corporation after the stock split as well.

Which of the following is the most valid reason to split a stock that has a market price of $110 per share?

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Short-Term Financial Planning

Working-Capital Management

Current Asset Management

International Business Finance

Filters