Question 1

When Firm X makes the decision to pay dividends,they also make the decision not to reinvest the cash in the firm.

Accepted Answer

A) True 
 B)False

Question 2

Bass Frozen Foods,Inc.has found three acceptable investment opportunities.The three projects require a total of $5 million in financing.It is the company's policy to finance its investments by using 40% debt and 60% common equity.The firm has generated $3.8 million dollars from its operations that could be used to finance the common equity portion of its investments.
a.What portion of the new investments will be financed by common equity and what portion by debt?
b.According to the residual dividend theory,how much would be paid out in dividends?

Accepted Answer

The answer of Bass Frozen Foods,Inc.has found three acceptable investment...

Question 3

AFB,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 AFB,Inc.stock would,other things being equal,be

Accepted Answer

A)  $140.00 per share. 
B)  $200.00 per share. 
C)  $100.00 per share. 
D)  $2.00 per share.

Question 4

Describe the three divergent views of dividend policy's effect on share price.

Accepted Answer

The answer of Describe the three divergent views of dividend...

Question 5

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

Accepted Answer

A)  offer to employees who own an interest in the firm. 
B)  open market. 
C)  tender offer to all existing stockholders. 
D)  offer to one or more major stockholders on a negotiated basis.

Question 6

An investor who requires an 18% percent return for a stock that pays no dividends and requires a 12% return for a stock that pays its entire return from dividends may be following the bird-in-the-hand dividend theory.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

QRW,Inc.has a retained earnings balance of $2,000,000.The company reported net income of $600,000,sales of $4,000,000,and has 200,000 shares of common stock outstanding.The company announced a dividend of $2.00 per share.Therefore the company's dividend payout ratio is

Accepted Answer

A)  66.7%. 
B)  50%. 
C)  20%. 
D)  10%.

Question 9

The final approval of a dividend payment comes from

Accepted Answer

A)  the controller. 
B)  the president of the company. 
C)  the board of directors. 
D)  It is a joint decision requiring approval from all of the above.

Question 10

When an unexpected change in dividend policy develops,investors may attach informational content to the events.

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

Question 12

The clientele effect does not imply that either high or low dividends are optimal,rather that firms should not make significant and arbitrary changes in their existing dividend policy.

Accepted Answer

A) True 
 B)False

Question 13

Dividend policy is influenced by

Accepted Answer

A)  a company's investment opportunities. 
B)  a firm's capital structure mix. 
C)  a company's availability of internally generated funds. 
D)  all of the above.

Question 14

Stock repurchases may be used for all of the following EXCEPT

Accepted Answer

A)  a means for providing an internal investment opportunity. 
B)  to improve earnings per share. 
C)  to decrease the corporation's debt ratio. 
D)  to eliminate a minority ownership group of stockholders.

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

A stock repurchase plan that involves issuing long-term debt to fund the purchase of the company's stock may be used as a way to alter a corporation's capital structure.

Accepted Answer

A) True 
 B)False

Question 17

Low dividends may increase stock value according to the

Accepted Answer

A)  bird-in-the-hand theory. 
B)  information effect. 
C)  impact of agency costs. 
D)  tax bias in favor of capital gains.

Question 18

All of the following are likely to result in a lower dividend,other things the same,EXCEPT

Accepted Answer

A)  statutory restrictions. 
B)  debt covenants. 
C)  liquidity constraints. 
D)  highly diverse ownership.

Question 19

When considering taxes,most investors prefer capital gains over dividend income.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 13: Dividend Policy and Internal Financing

When Firm X makes the decision to pay dividends,they also make the decision not to reinvest the cash in the firm.

AFB,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 AFB,Inc.stock would,other things being equal,be

Describe the three divergent views of dividend policy's effect on share price.

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

An investor who requires an 18% percent return for a stock that pays no dividends and requires a 12% return for a stock that pays its entire return from dividends may be following the bird-in-the-hand dividend theory.

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

QRW,Inc.has a retained earnings balance of $2,000,000.The company reported net income of $600,000,sales of $4,000,000,and has 200,000 shares of common stock outstanding.The company announced a dividend of $2.00 per share.Therefore the company's dividend payout ratio is

The final approval of a dividend payment comes from

When an unexpected change in dividend policy develops,investors may attach informational content to the events.

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

The clientele effect does not imply that either high or low dividends are optimal,rather that firms should not make significant and arbitrary changes in their existing dividend policy.

Dividend policy is influenced by

Stock repurchases may be used for all of the following EXCEPT

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.

A stock repurchase plan that involves issuing long-term debt to fund the purchase of the company's stock may be used as a way to alter a corporation's capital structure.

Low dividends may increase stock value according to the

All of the following are likely to result in a lower dividend,other things the same,EXCEPT

When considering taxes,most investors prefer capital gains over dividend income.

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