Question 1

The announcement of an increase in the cash dividend should, according to MM, lead to an increase in the price of the firm's stock, other things held constant.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?

Accepted Answer

A)   Its earnings become more stable.
B)   Its access to the capital markets increases.
C)   Its research and development efforts pay off, and it now has more high-return investment opportunities.
D)   Its accounts receivable decrease due to a change in its credit policy.
E)   Its stock price has increased over the last year by a greater percentage than the increase in the broad stock market averages.F) C) and E)
G) D) and E)

Question 3

Becker Financial recently declared a 2-for-1 stock split. Prior to the split, the stock sold for $80 per share. If the firm's total market value is unchanged by the split, what will the stock price be following the split?

Accepted Answer

A)   $36.10
B)   $38.00
C)   $40.00
D)   $42.00
E)   $44.10F) C) and D)
G) A) and B)

Question 4

Keys Financial has done extremely well in recent years, and its stock now sells for $175 per share. Management wants to get the price down to a more typical level, which it thinks is $25 per share. What stock split would be required to get to this price, assuming the transaction has no effect on the total market value? Put another way, how many new shares should be given per one old share?

Accepted Answer

A)   6.98
B)   7.00
C)   7.35
D)   7.72
E)   8.10F) B) and C)
G) A) and C)

Question 5

If a firm pays out all of its earnings as dividends and its stockholders then elect to have all of their dividends reinvested, the company should reconsider its dividend policy and possibly move to a lower dividend payout ratio.

Accepted Answer

A) True 
 B)False

Question 6

If a firm uses the residual dividend model to set dividend policy, then dividends are determined as a residual after providing for the equity required to fund the capital budget. Under this model, the better the firm's investment opportunities, the lower its payout ratio will be, other things held constant.

Accepted Answer

A) True 
 B)False

Question 7

Portland Plastics Inc. has the following data. If it follows the residual dividend model, what is its forecasted dividend payout ratio?   Capital budget $12,500% Debt 40% Net income (NI)  $11,500\begin{array} { l c } 	ext { Capital budget } & \$ 12,500 \\% 	ext { Debt } & 40 \% \	ext { Net income (NI)  } & \$ 11,500\end{array} Capital budget % Debt  Net income (NI)  ​$12,50040%$11,500​

Accepted Answer

A)   25.36%
B)   28.17%
C)   31.30%
D)   34.78%
E)   38.26% F) A) and B)
G) None of the above

Question 8

Grullon Co. is considering a 7-for-3 stock split. The current stock price is $75.00 per share, and the firm believes that its total market value would increase by 5% as a result of the improved liquidity that should follow the split. What is the stock's expected price following the split?

Accepted Answer

A)   $32.06
B)   $33.75
C)   $35.44
D)   $37.21
E)   $39.07F) B) and E)
G) A) and C)

Question 9

Mid-State BankCorp recently declared a 7-for-2 stock split. Prior to the split, the stock sold for $80 per share. If the firm's total market value is unchanged by the split, what will the stock price be following the split?

Accepted Answer

A)   $20.63
B)   $21.71
C)   $22.86
D)   $24.00
E)   $25.20F) A) and B)
G) C) and E)

Question 10

Which of the following statements is CORRECT?

Accepted Answer

A)   Under the tax laws as they existed in 2011, a dollar received by an individual taxpayer as interest income is taxed at the same rate as a dollar received as dividends.
B)   One nice feature of dividend reinvestment plans (DRIPs)  is that they reduce the taxes investors would have to pay if they received cash dividends.
C)   Empirical research indicates that, in general, companies send a negative signal to the marketplace when they announce an increase in the dividend. As a result, share prices fall when dividend increases are announced because investors interpret the increase as a signal that the firm expects fewer good investment opportunities in the future.
D)   If a company needs to raise new equity capital, a new-stock dividend reinvestment plan would make sense. However, if the firm does not need new equity, then an open market purchase dividend reinvestment plan would probably make more sense.
E)   Dividend reinvestment plans have not caught on in most industries, and today over 99% of all DRIPs are offered by utilities.F) A) and B)
G) A) and E)

Question 11

Which of the following does NOT normally influence a firm's dividend policy decision?

Accepted Answer

A)   The firm's ability to accelerate or delay investment projects without adverse consequences.
B)   A strong preference by most of its shareholders for current cash income versus potential future capital gains.
C)   Constraints imposed by the firm's bond indenture.
D)   The fact that much of the firm's equipment is leased rather than bought and owned.
E)   The fact that Congress is considering changes in the tax law regarding the taxation of dividends versus capital gains.F) All of the above
G) D) and E)

Question 12

Suppose you plotted a curve which showed a Firm U's WACC on the vertical axis and its debt ratio on the horizontal axis. Then you plotted a similar curve for Firm V. The curve for firm U resembled a shallow "U," while that for Firm V resembled a sharp "V." Both firms have debt ratios that cause their WACCs to be minimized. Other things held constant, it would be easier for Firm V than for Firm U to maintain a steady dividend in the face of varying investment opportunities and earnings from year to year.

Accepted Answer

A) True 
 B)False

Exam 14: Distributions to Shareholders: Dividends and Share Repurchases

Correct Answer
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Which of the following does NOT normally influence a firm's dividend policy decision?

Correct Answer
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Becker Financial recently declared a 2-for-1 stock split. Prior to the split, the stock sold for $80 per share. If the firm's total market value is unchanged by the split, what will the stock price be following the split?

Correct Answer
verified

The announcement of an increase in the cash dividend should, according to MM, lead to an increase in the price of the firm's stock, other things held constant.

Correct Answer
verified

Correct Answer
verified

If a firm pays out all of its earnings as dividends and its stockholders then elect to have all of their dividends reinvested, the company should reconsider its dividend policy and possibly move to a lower dividend payout ratio.

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Grullon Co. is considering a 7-for-3 stock split. The current stock price is $75.00 per share, and the firm believes that its total market value would increase by 5% as a result of the improved liquidity that should follow the split. What is the stock's expected price following the split?

Correct Answer
verified

Mid-State BankCorp recently declared a 7-for-2 stock split. Prior to the split, the stock sold for $80 per share. If the firm's total market value is unchanged by the split, what will the stock price be following the split?

Correct Answer
verified

Correct Answer
verified

Portland Plastics Inc. has the following data. If it follows the residual dividend model, what is its forecasted dividend payout ratio? $\begin{array} { l c } \text { Capital budget } & \$ 12,500 \\\% \text { Debt } & 40 \% \\\text { Net income (NI) } & \$ 11,500\end{array}$

Correct Answer
verified

Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?

Correct Answer
verified

Exam 14: Distributions to Shareholders: Dividends and Share Repurchases

Correct AnswerverifiedShow Answer

Which of the following does NOT normally influence a firm's dividend policy decision?

Correct AnswerverifiedShow Answer

Becker Financial recently declared a 2-for-1 stock split. Prior to the split, the stock sold for $80 per share. If the firm's total market value is unchanged by the split, what will the stock price be following the split?

Correct AnswerverifiedShow Answer

The announcement of an increase in the cash dividend should, according to MM, lead to an increase in the price of the firm's stock, other things held constant.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a firm pays out all of its earnings as dividends and its stockholders then elect to have all of their dividends reinvested, the company should reconsider its dividend policy and possibly move to a lower dividend payout ratio.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Grullon Co. is considering a 7-for-3 stock split. The current stock price is $75.00 per share, and the firm believes that its total market value would increase by 5% as a result of the improved liquidity that should follow the split. What is the stock's expected price following the split?

Correct AnswerverifiedShow Answer

Mid-State BankCorp recently declared a 7-for-2 stock split. Prior to the split, the stock sold for $80 per share. If the firm's total market value is unchanged by the split, what will the stock price be following the split?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?

Correct AnswerverifiedShow Answer

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