Question 1

The ex-dividend date is typically two days prior to the payment date of the dividend.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) residual dividend theory. 
B) bird-in-the-hand theory. 
C) perfect capital markets. 
D) MM's indifference theorem.

Question 3

A fast-growing company with many high net present value projects may maximize shareholder wealth by NOT paying a dividend.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following will result from a stock repurchase?

Accepted Answer

A) Earnings per share will rise. 
B) Number of shares will increase. 
C) Corporate cash is conserved. 
D) Ownership is diluted.

Question 5

All of the following are rationales given for a stock dividend or split EXCEPT

Accepted Answer

A) the price will not fall proportionately to the share increase. 
B) an optimum price range does not exist. 
C) there is positive informational content associated with the announcement. 
D) conservation of corporate cash.

Question 6

The problem with the constant dividend payout ratio is

Accepted Answer

A) investors may come to expect a specified amount. 
B) the dollar amount of the dividend fluctuates from year to year. 
C) management is reluctant to cut the dividend even if there are low profits that year. 
D) management cannot decrease the dividend when times are tough.

Question 7

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 8

A stock split is defined as a stock dividend exceeding 25%.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Flotation costs

Accepted Answer

A) include the fees paid to the investment bankers,lawyers,and accountants involved in selling a new security issue. 
B) encourage firms to pay large dividends. 
C) are encountered whenever a firm fails to pay a dividend. 
D) are incurred when investors fail to cash their dividend check.

Question 11

AFB,Inc.'s dividend policy is to maintain a constant payout ratio.This year AFB,Inc.paid out a total of $2 million in dividends.Next year,AFB,Inc.'s sales and earnings per share are expected to increase.Dividend payments are expected to

Accepted Answer

A) remain at $2 million. 
B) increase above $2 million. 
C) decrease below $2 million. 
D) increase above $2 million only if the company issues additional shares of common stock.

Question 12

Concentric Corporation has 10 million shares of stock outstanding.Concentric's after-tax profits are $140 million and the corporation's stock is selling at a price-earnings multiple of 18,for a stock price of $252 per share.Concentric's management issues a 40% stock dividend.What is the effect on an investor who owns 100 shares of Concentric before the dividend if Concentric's price-earnings multiple remains the same after the dividend is paid?

Accepted Answer

A) The investor will own 140 shares worth $25,200. 
B) The investor will own 140 shares worth $35,280. 
C) The investor will own 100 shares worth $25,200. 
D) The investor will own 100 shares worth $35,280.

Question 13

Coppell Timber Company had total earnings last year of $5,000,000,but expects total earnings to drop to $4,750,000 this year because of a slump in the housing industry.There are currently 1,000,000 shares of common stock outstanding.The company has $4,000,000 worth of investments to undertake this year.The company finances 40 percent of its investments with debt and 60 percent with equity capital.The company paid $3.00 per share in dividends last year. 
a.If the company follows a pure residual dividend policy,how large a dividend will each shareholder receive this year? 
b.If the company maintains a constant dividend payout ratio each year,how large a dividend will each shareholder receive this year? 
c.If the company follows a constant dollar dividend policy,how large a dividend will each shareholder receive this year?

Accepted Answer

The answer of Coppell Timber Company had total earnings last...

Question 14

As long as a firm has a positive level of retained earnings,it can pay a dividend.

Accepted Answer

A) True 
 B)False

Question 15

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 16

Ted Tech Inc.is offering a 10% stock dividend.The firm currently has 200,000 shares outstanding and after-tax profits of $800,000.The current price of the stock is $48. 
a.Calculate the new earnings per share. 
b.What is the original price/earnings multiple? 
c.Providing that the price/earnings multiple stays the same,what will the new stock price be after the stock dividend?

Accepted Answer

The answer of Ted Tech Inc.is offering a 10% stock...

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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 19

The residual dividend theory suggests that dividends should be paid to stockholders first and then what is left can be reinvested by the firm.

Accepted Answer

A) True 
 B)False

Question 20

One potential reason for a share repurchase is

Accepted Answer

A) to increase the power of a minority group of shareholders. 
B) maximize the dilution in earnings associated with a merger. 
C) a reduction in the firm's cost associated with servicing small stockholders. 
D) to signal the market that the firm's stock price is too high.

Exam 13: Dividend Policy and Internal Financing

The ex-dividend date is typically two days prior to the payment date of the dividend.

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

A fast-growing company with many high net present value projects may maximize shareholder wealth by NOT paying a dividend.

Which of the following will result from a stock repurchase?

All of the following are rationales given for a stock dividend or split EXCEPT

The problem with the constant dividend payout ratio is

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

A stock split is defined as a stock dividend exceeding 25%.

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

Flotation costs

AFB,Inc.'s dividend policy is to maintain a constant payout ratio.This year AFB,Inc.paid out a total of $2 million in dividends.Next year,AFB,Inc.'s sales and earnings per share are expected to increase.Dividend payments are expected to

As long as a firm has a positive level of retained earnings,it can pay a dividend.

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.

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

Stock repurchases may be used for all of the following EXCEPT

The residual dividend theory suggests that dividends should be paid to stockholders first and then what is left can be reinvested by the firm.

One potential reason for a share repurchase is