Question 1

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

Accepted Answer

A)  borrow to pay the cash dividend. 
B)  declare a dividend equal to the remaining balance. 
C)  pay no cash dividends. 
D)  not need to consider its dividend policy. 
A)  borrow to pay the cash dividend. 
B)  declare a dividend equal to the remaining balance. 
C)  pay no cash dividends. 
D)  not need to consider its dividend policy.

Question 2

While an earnings requirement limiting the amount of dividends paid is sometimes imposed, the firm is not prohibited from paying more in dividends than its current earnings.

Accepted Answer

A) True 
 B)False

Question 3

As a result of the Jobs and Growth Tax Relief Reconciliation Act of 2003, early studies showed that the percentage of firms paying quarterly dividends

Accepted Answer

A)  increased. 
B)  decreased. 
C)  did not change. 
D)  none of the above. 
A)  increased. 
B)  decreased. 
C)  did not change. 
D)  none of the above.

Question 4

Which type of dividend payment policy has the advantage that if the firm's earnings drop, dividends will still be maintained at a relatively constant level?

Accepted Answer

A)  Constant-payout-ratio policy. 
B)  Regular dividend policy. 
C)  Low-regular-and-extra dividend policy. 
D)  None of the above. 
A)  Constant-payout-ratio policy. 
B)  Regular dividend policy. 
C)  Low-regular-and-extra dividend policy. 
D)  None of the above.

Question 5

In most states, legal capital is measured not only by the par value and paid in capital of the stock, but also by any accumulated retained earnings.

Accepted Answer

A) True 
 B)False

Question 6

In establishing a dividend policy, a firm should retain funds for investment in projects yielding higher returns than the owners could obtain from external investments of equal risk.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Stock dividends are ________ costly to issue than cash dividends.

Accepted Answer

A)  less 
B)  equally 
C)  more 
D)  occasionally less 
A)  less 
B)  equally 
C)  more 
D)  occasionally less

Question 9

Tangshan Mining has 100,000 shares outstanding and just declared a 3-for-2 stock split. Before the announcement, the firm's shares were trading at $50.00 per share. After the stock dividend, the firm's shares should trade at ________ per share.

Accepted Answer

A)  $33.33 
B)  $50.00 
C)  $75.00 
D)  none of the above 
A)  $33.33 
B)  $50.00 
C)  $75.00 
D)  none of the above

Question 10

Tangshan Mining has common stock at par of $200,000, paid in capital in excess of par of $400,000, and retained earnings of $280,000. In states where the firm's legal capital is defined as the total of par value and paid-in-capital of common stock, the firm could pay out ________ in cash dividends without impairing its capital.

Accepted Answer

A)  $280,000 
B)  $400,000 
C)  $480,000 
D)  $600,000 
A)  $280,000 
B)  $400,000 
C)  $480,000 
D)  $600,000

Question 11

A firm has had the following earnings history over the last five years:   If the firm's dividend policy is based on a $0.50 payout per share, increasing by $0.05 per share whenever earnings exceed $1.50 per share, the annual dividends for 2000 and 2003 were

Accepted Answer

A)  $1.25 and $2.50, respectively. 
B)  $0.50 and $0.50, respectively. 
C)  $0 and $0.50, respectively. 
D)  $0.50 and $0.55, respectively. 
A)  $1.25 and $2.50, respectively. 
B)  $0.50 and $0.50, respectively. 
C)  $0 and $0.50, respectively. 
D)  $0.50 and $0.55, respectively.

Question 12

When a firm pays a stated dollar dividend and adjusts the payment as earnings increase, its dividend policy can be called

Accepted Answer

A)  a low-regular-and-extra dividend policy. 
B)  a regular dividend policy. 
C)  a target dividend-payout ratio policy. 
D)  a constant-payout-ratio dividend policy. 
A)  a low-regular-and-extra dividend policy. 
B)  a regular dividend policy. 
C)  a target dividend-payout ratio policy. 
D)  a constant-payout-ratio dividend policy.

Question 13

Which of the following types of firms are most likely NOT to payout cash dividends?

Accepted Answer

A)  Rapidly growing firms 
B)  Firms with modest growth 
C)  Large, mature firms 
D)  International Corporations 
A)  Rapidly growing firms 
B)  Firms with modest growth 
C)  Large, mature firms 
D)  International Corporations

Question 14

Tangshan Mining Company has released the following information.   (a) What are Tangshan Mining's current earnings per share?
(b) What is Tangshan Mining's current P/E ratio?
(c) Tangshan Mining wants to use half of its earnings either to pay shareholders dividends or to repurchase shares for inclusion in the firm's employee stock ownership plan. If the firm pays a cash dividend, what will be the dividend per share received by existing shareholders?
(d) Instead of paying the cash dividend, what if the firm uses half of its earnings to pay $55 per share to repurchase the shares, what will be the firm's new EPS? What should be the firm's new share price?
(e) Compare the impact of a stock dividend and stock repurchase on shareholder wealth.

Accepted Answer

(a) EPS = $5,000,000/1,000,000 = $5.00 p

Question 15

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

Accepted Answer

A)  the firm avoids giving the shareholders false hopes. 
B)  if the firm's earnings drop, so does the dividend payment. 
C)  the extra dividend may become a regular event. 
D)  cyclical shifts in earnings may be avoided. 
A)  the firm avoids giving the shareholders false hopes. 
B)  if the firm's earnings drop, so does the dividend payment. 
C)  the extra dividend may become a regular event. 
D)  cyclical shifts in earnings may be avoided.

Question 16

The information content of dividends refers to

Accepted Answer

A)  nonpayment of dividends by corporations. 
B)  dividend changes as indicators of a firm's future. 
C)  a stable and continuous dividend. 
D)  a dividend paid as a percent of current earnings. 
A)  nonpayment of dividends by corporations. 
B)  dividend changes as indicators of a firm's future. 
C)  a stable and continuous dividend. 
D)  a dividend paid as a percent of current earnings.

Question 17

The clientele effect refers to

Accepted Answer

A)  the relevance of dividend policy on share value. 
B)  the firm's ability to attract stockholders whose dividend preferences are similar to the firm's dividend policy. 
C)  the informational content of dividends. 
D)  the "bird-in-the-hand" argument. 
A)  the relevance of dividend policy on share value. 
B)  the firm's ability to attract stockholders whose dividend preferences are similar to the firm's dividend policy. 
C)  the informational content of dividends. 
D)  the "bird-in-the-hand" argument.

Question 18

The repurchase of common stock results in a type of reverse dilution, since the earnings per share and the market price of stock are increased by reducing the number of shares outstanding.

Accepted Answer

A) True 
 B)False

Question 19

Hayley's Optical has a stockholders' equity account as shown below. The firm's common stock currently sells for $20 per share.   (a) What is the maximum dividend per share Hayley's Optical can pay? (Assume capital includes all paid-in capital.)
(b) Recast the partial balance sheet (the stockholders' equity accounts) to show independently
(1) a 2 for 1 stock split of the common stock.
(2) a cash dividend of $1.50 per share.
(3) a stock dividend of 5% on the common stock.
(c) At what price would you expect Hayley's Optical stock to sell after
(1) the stock split?
(2) the stock dividend?

Accepted Answer

(a) The maximum dividend per share the f

Question 20

Stock repurchases are made for all of the following reasons EXCEPT

Accepted Answer

A)  to obtain shares to be used in acquisition. 
B)  to retire outstanding issues. 
C)  to have shares available for stock option plans. 
D)  to decrease the book value of equity. 
A)  to obtain shares to be used in acquisition. 
B)  to retire outstanding issues. 
C)  to have shares available for stock option plans. 
D)  to decrease the book value of equity.

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

While an earnings requirement limiting the amount of dividends paid is sometimes imposed, the firm is not prohibited from paying more in dividends than its current earnings.

As a result of the Jobs and Growth Tax Relief Reconciliation Act of 2003, early studies showed that the percentage of firms paying quarterly dividends

Which type of dividend payment policy has the advantage that if the firm's earnings drop, dividends will still be maintained at a relatively constant level?

In most states, legal capital is measured not only by the par value and paid in capital of the stock, but also by any accumulated retained earnings.

In establishing a dividend policy, a firm should retain funds for investment in projects yielding higher returns than the owners could obtain from external investments of equal risk.

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

Stock dividends are ________ costly to issue than cash dividends.

Tangshan Mining has 100,000 shares outstanding and just declared a 3-for-2 stock split. Before the announcement, the firm's shares were trading at $50.00 per share. After the stock dividend, the firm's shares should trade at ________ per share.

A firm has had the following earnings history over the last five years: If the firm's dividend policy is based on a $0.50 payout per share, increasing by $0.05 per share whenever earnings exceed $1.50 per share, the annual dividends for 2000 and 2003 were

When a firm pays a stated dollar dividend and adjusts the payment as earnings increase, its dividend policy can be called

Which of the following types of firms are most likely NOT to payout cash dividends?

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

The information content of dividends refers to

The clientele effect refers to

The repurchase of common stock results in a type of reverse dilution, since the earnings per share and the market price of stock are increased by reducing the number of shares outstanding.

Stock repurchases are made for all of the following reasons EXCEPT

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters

Exam 14: Payout Policy

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

While an earnings requirement limiting the amount of dividends paid is sometimes imposed, the firm is not prohibited from paying more in dividends than its current earnings.

As a result of the Jobs and Growth Tax Relief Reconciliation Act of 2003, early studies showed that the percentage of firms paying quarterly dividends

Which type of dividend payment policy has the advantage that if the firm's earnings drop, dividends will still be maintained at a relatively constant level?

In most states, legal capital is measured not only by the par value and paid in capital of the stock, but also by any accumulated retained earnings.

In establishing a dividend policy, a firm should retain funds for investment in projects yielding higher returns than the owners could obtain from external investments of equal risk.

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

Stock dividends are ________ costly to issue than cash dividends.

Tangshan Mining has 100,000 shares outstanding and just declared a 3-for-2 stock split. Before the announcement, the firm's shares were trading at $50.00 per share. After the stock dividend, the firm's shares should trade at ________ per share.

A firm has had the following earnings history over the last five years: If the firm's dividend policy is based on a $0.50 payout per share, increasing by $0.05 per share whenever earnings exceed $1.50 per share, the annual dividends for 2000 and 2003 were

When a firm pays a stated dollar dividend and adjusts the payment as earnings increase, its dividend policy can be called

Which of the following types of firms are most likely NOT to payout cash dividends?

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

The information content of dividends refers to

The clientele effect refers to

The repurchase of common stock results in a type of reverse dilution, since the earnings per share and the market price of stock are increased by reducing the number of shares outstanding.

Stock repurchases are made for all of the following reasons EXCEPT

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters