Question 1

A firm finds that it has an unusual amount of extra cash at the end of its fiscal year. It is considering pursuing one of the following as a means for distributing it to the shareholders. What are the pros and cons of each?
It could pay an extra cash dividend
It could increase its regular dividend
It can use the money to repurchase stock

Accepted Answer

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Question 2

Ryan's Auto Parts has 200,000 shares of stock outstanding with a par value of $1 per share and a market value of $10 a share. The company has retained earnings of $86,000 and paid in surplus of $285,000. The company just announced a 2-for-5 reverse stock split. What will the par value per share be after the split?

Accepted Answer

A)   $0.20
B)   $0.40
C)   $1.00
D)   $2.50
E)   $5.00F) All of the above
G) A) and C)

Question 3

Which of the following is the best definition of a residual dividend approach?

Accepted Answer

A)   Payment made by a firm to its owners in the form of stock, diluting the value of each share outstanding.
B)   Procedure where a firm's number of shares outstanding is reduced.
C)   Policy where a firm pays dividends only after meeting its investment needs while maintaining a desired debt-to-equity ratio.
D)   Another method used to pay out a firm's earnings to its owners, which provides more preferable tax treatment than dividends.
E)   Cash payment made by a firm to its owners in the normal course of business, usually made four times a year.F) D) and E)
G) C) and E)

Question 4

SesameSweet Inc. has 220,000 shares outstanding with a market price of $12 per share. On the balance sheet, common stock is $760,000, and retained earnings are $275,000. There are no transactions costs.

What is total owners' equity for SesameSweet?

Accepted Answer

A)   $220,000
B)   $495,000
C)   $760,000
D)   $1,035,000
E)   $3,455,000F) A) and E)
G) A) and C)

Question 5

Down River Express has 5,000 shares of stock outstanding with a par value of $1.00 per share. The current market value of the firm is $390,000. The balance sheet shows a paid in surplus account value of $122,000 and retained earnings of $216,000. The company just announced a 2-for-1 stock split. What will the paid in surplus account balance be after the split?

Accepted Answer

A)   $61,000
B)   $112,000
C)   $122,000
D)   $183,000
E)   $244,000F) B) and D)
G) C) and E)

Question 6

A firm that follows a cyclical dividend policy will ___________ .

Accepted Answer

A)   Establish and attempt to maintain a stable dividend payment.
B)   Pay dividends on a residual basis.
C)   Establish and attempt to maintain a target debt/equity ratio.
D)   Make more special dividend payments than firms that follow a stable dividend payout.
E)   Pay dividends that vary according to income.F) A) and D)
G) A) and E)

Question 7

The fraction of earnings a firm expects to pay out as dividends over the long-run is its:

Accepted Answer

A)   Internal rate of return.
B)   Required return on investment.
C)   Target ROA.
D)   Target payout ratio.
E)   Target capital structure.F) B) and C)
G) D) and E)

Question 8

Avoiding cutting back on positive NPV projects is consistent with both a residual and a compromise dividend policy.

Accepted Answer

A) True 
 B)False

Question 9

When a firm buys shares of their own company in the marketplace the firm is doing a:

Accepted Answer

A)   Reverse IPO.
B)   Reverse stock split.
C)   Share repurchase.
D)   Liquidating transaction.
E)   Homemade dividend transaction.F) C) and D)
G) B) and D)

Question 10

LT Truckers declared a quarterly dividend on October 3 to record holders as of Tuesday, November 7. The dividend will be paid on Friday, November 31. Alexa purchased 500 shares of LT stock on November 3. Al sold 250 shares of LT stock on November 6. Who will receive the dividend payment on November 31?

Accepted Answer

A)   Alexa only.
B)   Al only.
C)   both Alexa and Al.
D)   neither Alexa nor Al.
E)   Cannot be determined from the information provided.F) A) and D)
G) A) and C)

Question 11

Of the following factors, which one is considered to be the primary factor affecting a firm's dividend decision?

Accepted Answer

A)   Personal taxes of company stockholders.
B)   Consistent dividend policy.
C)   Attracting retail investors.
D)   Attracting institutional investors.
E)   Sustainable changes in earnings.F) B) and E)
G) C) and E)

Question 12

Jesson Corporation just declared a $0.52 dividend per share based on EPS of $6.50. Calculate the retention ratio

Accepted Answer

A)   92%
B)   8%
C)   75%
D)   25%
E)   18%F) A) and D)
G) B) and D)

Question 13

Stockholders' desire for current income is a factor that favor a high dividend policy.

Accepted Answer

A) True 
 B)False

Question 14

The Peanut Shop has 5,000 shares of stock outstanding with a par value of $1.00 per share. The current market value of the firm is $390,000. The company just announced a 3-for-1 stock split. What will the market price per share be after the split?

Accepted Answer

A)   $13
B)   $26
C)   $42
D)   $52
E)   $78F) B) and D)
G) None of the above

Question 15

A method of distributing a firm's earnings to shareholders such that the shareholders can select when they want to claim the income for tax purposes is a:

Accepted Answer

A)   Stock split.
B)   Reverse stock split.
C)   Stock dividend.
D)   Liquidating dividend.
E)   Stock repurchase.F) A) and B)
G) A) and E)

Question 16

Absent taxes and market imperfections, the market value of a stock will tend to decrease by roughly the amount of the dividend on the:

Accepted Answer

A)   Dividend declaration date.
B)   Ex-dividend date.
C)   Date of record.
D)   Date of payment.
E)   Day after the date of payment.F) A) and B)
G) A) and C)

Question 17

The Retail Outlet has 6,000 shares of stock outstanding with a book value of $1.00 per share. The current market value of the firm is $420,000. The balance sheet shows retained earnings of $234,000. The company just announced a 2-for-1 stock split. What will the retained earnings account balance be after the split?

Accepted Answer

A)   $117,000
B)   $234,000
C)   $351,000
D)   $410,000
E)   $468,000F) C) and E)
G) A) and B)

Question 18

Wisniewski Inventions has 560,000 shares of stock outstanding at a market price of $3.90. If the firm declares a 2-for-7 reverse stock split, the company will have ____ shares outstanding at a market price of:

Accepted Answer

A)   160,000; $1.11.
B)   160,000; $13.65.
C)   160,000; $27.30.
D)   1,960,000; $1.11.
E)   1,960,000; $13.65.F) B) and E)
G) A) and D)

Question 19

The information content of a dividend increase generally signals that:

Accepted Answer

A)   The firm has a one-time surplus of cash.
B)   The firm has few, if any, net present value projects to pursue.
C)   Management believes that the future earnings of the firm will be strong.
D)   The firm has more cash than it needs due to sales declines.
E)   Future dividends will be lower.F) D) and E)
G) A) and B)

Question 20

On July 14, you purchased 1,500 shares of Myron stock. On August 1, you sold 500 shares of this stock for $16 a share. You sold an additional 300 shares on August 18 at a price of $18 a share. The company declared a $.75 per share dividend on August 3 to holders of record as of Wednesday, August 15. This dividend is payable on August 31. How much dividend income will you receive on August 31 as a result of your ownership of Myron stock?

Accepted Answer

A)   $0
B)   $525
C)   $750
D)   $900
E)   $1,125F) A) and E)
G) A) and D)

Exam 17: Dividends and Dividend Policy

Correct Answer
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A method of distributing a firm's earnings to shareholders such that the shareholders can select when they want to claim the income for tax purposes is a:

Correct Answer
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Avoiding cutting back on positive NPV projects is consistent with both a residual and a compromise dividend policy.

Correct Answer
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Of the following factors, which one is considered to be the primary factor affecting a firm's dividend decision?

Correct Answer
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Absent taxes and market imperfections, the market value of a stock will tend to decrease by roughly the amount of the dividend on the:

Correct Answer
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Jesson Corporation just declared a $0.52 dividend per share based on EPS of $6.50. Calculate the retention ratio

Correct Answer
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Correct Answer
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Which of the following is the best definition of a residual dividend approach?

Correct Answer
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SesameSweet Inc. has 220,000 shares outstanding with a market price of $12 per share. On the balance sheet, common stock is $760,000, and retained earnings are $275,000. There are no transactions costs. What is total owners' equity for SesameSweet?

Correct Answer
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Wisniewski Inventions has 560,000 shares of stock outstanding at a market price of $3.90. If the firm declares a 2-for-7 reverse stock split, the company will have ____ shares outstanding at a market price of:

Correct Answer
verified

The information content of a dividend increase generally signals that:

Correct Answer
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Correct Answer
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This question requires students to weigh...
View Answer

Correct Answer
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The Peanut Shop has 5,000 shares of stock outstanding with a par value of $1.00 per share. The current market value of the firm is $390,000. The company just announced a 3-for-1 stock split. What will the market price per share be after the split?

Correct Answer
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Correct Answer
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Correct Answer
verified

Stockholders' desire for current income is a factor that favor a high dividend policy.

Correct Answer
verified

When a firm buys shares of their own company in the marketplace the firm is doing a:

Correct Answer
verified

The fraction of earnings a firm expects to pay out as dividends over the long-run is its:

Correct Answer
verified

A firm that follows a cyclical dividend policy will ___________ .

Correct Answer
verified

Exam 17: Dividends and Dividend Policy

Correct AnswerverifiedShow Answer

A method of distributing a firm's earnings to shareholders such that the shareholders can select when they want to claim the income for tax purposes is a:

Correct AnswerverifiedShow Answer

Avoiding cutting back on positive NPV projects is consistent with both a residual and a compromise dividend policy.

Correct AnswerverifiedShow Answer

Of the following factors, which one is considered to be the primary factor affecting a firm's dividend decision?

Correct AnswerverifiedShow Answer

Absent taxes and market imperfections, the market value of a stock will tend to decrease by roughly the amount of the dividend on the:

Correct AnswerverifiedShow Answer

Jesson Corporation just declared a $0.52 dividend per share based on EPS of $6.50. Calculate the retention ratio

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is the best definition of a residual dividend approach?

Correct AnswerverifiedShow Answer

SesameSweet Inc. has 220,000 shares outstanding with a market price of $12 per share. On the balance sheet, common stock is $760,000, and retained earnings are $275,000. There are no transactions costs. What is total owners' equity for SesameSweet?

Correct AnswerverifiedShow Answer

Wisniewski Inventions has 560,000 shares of stock outstanding at a market price of $3.90. If the firm declares a 2-for-7 reverse stock split, the company will have ____ shares outstanding at a market price of:

Correct AnswerverifiedShow Answer

The information content of a dividend increase generally signals that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThis question requires students to weigh...View AnswerShow Answer

Correct AnswerverifiedShow Answer

The Peanut Shop has 5,000 shares of stock outstanding with a par value of $1.00 per share. The current market value of the firm is $390,000. The company just announced a 3-for-1 stock split. What will the market price per share be after the split?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Stockholders' desire for current income is a factor that favor a high dividend policy.

Correct AnswerverifiedShow Answer

When a firm buys shares of their own company in the marketplace the firm is doing a:

Correct AnswerverifiedShow Answer

The fraction of earnings a firm expects to pay out as dividends over the long-run is its:

Correct AnswerverifiedShow Answer

A firm that follows a cyclical dividend policy will ___________ .

Correct AnswerverifiedShow Answer

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This question requires students to weigh...
View Answer

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