Exam 13: Dividend Policy and Internal Financing

Assume that a firm has a steady record of paying high dividends for years.A new management team decided to cut the current year's dividend in half without disclosing why.The market value of the stock fell 35% on the day the dividend cut was announced.Which of the following would best explain the stock market's reaction to the announcement?

If a firm were to unexpectedly omit payment of its quarterly dividend,that firm's stock price would probably drop.

Dividend policy is influenced by:

The viewpoint that low dividends increase stock value is based on which of the following principles?

The ex-dividend date occurs prior to the declaration date.

All of the following are methods available to a corporation that desires to repurchase stock except:

In order to maximize shareholder value,a corporation must earn a higher rate of return on a dollar that is retained in the corporation than the shareholders can earn by investing the dollar elsewhere.

Dividend changes may be used by management as a credible communication tool to signal investors about future earnings under which of the following dividend policy theories?

A corporation announces a significant increase in its annual dividend and its stock price increases on the news.This could be explained most directly by

A corporation announces a large increase in its annual dividend,but its stock price declines.This could result from

Which of the following supports the "bird-in-the-hand dividend theory?

One potential reason for a share repurchase is

Arden Corporation pays a quarterly dividend of $1.00 per share.Which of the following statements is most accurate concerning which shareholders will receive the dividend payment?

If a company in a perfect capital market decreased its dividend per share,an investor would be forced to sell his common stock at a depressed price.

A corporation with $1 million in retained earnings at the end of the year could easily pay a dividend of $500,000.

What is the information effect associated with dividends? Why does it occur?

A closely-held company whose owners are trying to maintain control would be less likely to pay dividends so that all earnings may be retained to finance future growth.

CDE Corporation declared a $2 per share dividend on October 1.The date of record is October 20^th,the ex-dividend date is October 18^th,and the payment date is October 31^st.Joe owns a share of stock on October 1.Joe sells his share to Mary on October 18^th,Mary sells the share to Tom on October 20^th,and Tom sells the share to William on October 30^th.Who will receive the dividend?

JB Appliance,Inc.stock is currently selling for $20 per share.The company completed a 5-for-1 stock split two days earlier.Two years ago,the company had a 2-for-1 stock split.If the stock splits had not happened,the price of JB Appliance,Inc.stock would,other things being equal,be

In perfect capital markets there