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The common stock of Dayton Dry Goods has historically had a low dividend yield that is expected to continue. As a result, the majority of its shareholders are individuals who prefer capital gains over cash dividends for tax reasons. The fact that most of these shareholders have similar characteristics is referred to as the ________ effect.


A) information content
B) clientele
C) investor
D) distribution
E) market reaction

F) A) and B)
G) B) and E)

Correct Answer

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Moffatt Construction has paid a quarterly dividend of $1.25 per share for the last three years. Which one of the following is most apt to cause the company to reduce the amount of its next dividend payment?


A) Decrease in the next quarter's revenue
B) Decrease in the next quarter's net income
C) Loss of a major customer which lowers the overall company's outlook for the next few years
D) Major lump sum cash outflow next month to start a new project
E) Increase in the number of new projects under consideration as compared to prior years

F) A) and E)
G) B) and E)

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Prezario's has 14,500 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $287,000. Currently, the retained earnings account balance is $197,000 and the capital in excess of par value account balance is $47,900. The company just announced a stock split of three-for-one. What is the common stock account balance after the stock split?


A) $29,000
B) $14,500
C) $4,833
D) $7,250
E) $43,500

F) C) and D)
G) A) and C)

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The last date on which you can purchase shares of stock and still receive the next dividend is the date that is ________ business day(s) prior to the date of record.


A) one
B) two
C) three
D) four
E) five

F) C) and E)
G) A) and D)

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Which one of the following statements appears to be supported by the current dividend policies of U.S. industrial firms?


A) Companies tend to increase the dividend amount per share, even when it's unclear if the increase can be maintained.
B) Investors no longer react to changes, either up or down, in dividends.
C) Newer, high-growth firms tend to pay larger dividends than mature firms.
D) Dividends are still viewed by shareholders as a signal of a company's future outlook.
E) Managers are no longer hesitant to lower dividend payments.

F) B) and D)
G) A) and C)

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The information content of a dividend increase generally signals that:


A) the payer has a one-time surplus of cash.
B) the payer has few, if any, net present value projects to pursue.
C) management believes earnings growth will be strong going forward.
D) the payer has more cash than it needs due to a decline in future orders.
E) dividends thereafter will be lower.

F) B) and D)
G) A) and E)

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All else equal, the market value of a stock will tend to decrease by roughly the aftertax value of the dividend on the:


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 E)
G) B) and C)

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Which one of the following statements is correct?


A) Companies prefer to cut dividend payments rather than borrow money to fund a short-term cash need.
B) Share repurchases tend to increase agency costs.
C) Maintaining a steady dividend is a key goal of most dividend-paying companies.
D) Short-term fluctuations in cash flows are the key factor in determining a company's dividend policy.
E) Stock prices tend to ignore unexpected changes in dividend payments.

F) All of the above
G) B) and E)

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The Olive Vase has 48,000 shares of stock outstanding with a par value of $1 per share and a market value of $13 a share. The company just announced a reverse stock split of three-for-seven. Currently, you own 400 shares of this stock. What will be the total value of your shares after the reverse stock split?


A) $3,300
B) $6,120
C) $5,200
D) $9,067
E) $12,133

F) A) and B)
G) B) and C)

Correct Answer

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Val's Marina Supply has 7,500 shares of stock outstanding with a par value of $1 per share and a market value of $28 per share. The balance sheet shows $7,500 in the common stock account, $32,400 in the capital in excess of par account, and $81,800 in the retained earnings account. The firm just announced a 100 percent stock dividend. What is the value of the capital in excess of par account after the dividend?


A) $24,900
B) $16,200
C) $32,400
D) $39,900
E) $64,800

F) A) and D)
G) A) and E)

Correct Answer

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Jean's Warehouse has 22,000 shares of stock outstanding with a current market value of $971,520. The company has retained earnings of $218,740 and paid in surplus of $384,200. The company is planning a stock split of four-for-three. What will be the retained earnings account value after the split?


A) $164,055
B) $218,740
C) $153,600
D) $193,653
E) $245,500

F) A) and E)
G) A) and B)

Correct Answer

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Mario's has 24,000 shares of stock outstanding with a par value of $1 per share and a market price of $11.40 a share. The balance sheet shows $68,600 in the capital in excess of par value account, and $34,910 in the retained earnings account. The company just announced a stock split of three-for-one. What will be the capital in excess of par account value after the split?


A) $22,867
B) $68,600
C) $46,000
D) $148,200
E) $205,800

F) A) and D)
G) A) and C)

Correct Answer

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Which one of the following factors tends to increase cash dividends?


A) Capital gains tax deferment
B) Terms contained in bond indentures
C) Corporate investors
D) Flotation costs
E) Homemade dividends

F) A) and E)
G) A) and B)

Correct Answer

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The Green Florist has 15,000 shares of stock outstanding with a par value of $1 per share and a market value of $14.40 a share. The company just announced a reverse stock split of two-for-three. Currently, you own 300 shares of this stock. How many shares will you own after the reverse stock split?


A) 150
B) 200
C) 450
D) 600
E) 75

F) C) and E)
G) C) and D)

Correct Answer

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The common stock of High Energy is selling for $58 a share. Currently, the firm has a total market value of $1,314,900 and a book value of $647,600. How many shares of stock will be outstanding if the firm does a stock split of five-for-two?


A) 27,914 shares
B) 49,377 shares
C) 54,168 shares
D) 47,727 shares
E) 56,677 shares

F) B) and E)
G) C) and E)

Correct Answer

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South Shore Limited has 14,500 shares of stock outstanding with a par value of $1 per share and a market price of $54.10 a share. The firm just announced a stock split of seven-for-two. What will be the par value of the stock after the split?


A) $.29
B) $.58
C) $1.00
D) $7.00
E) $3.50

F) A) and C)
G) A) and B)

Correct Answer

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The market value balance sheet for Cherry Pie Corp. reflects cash of $31,020, fixed assets of $539,750, and equity of $286,800. There are 6,000 shares of stock outstanding with a par value of $1 per share. The company has announced that it is going to repurchase $20,000 of stock. What will the price of the stock be after this repurchase?


A) $47.80
B) $46.60
C) $46.20
D) $47.60
E) $46.80

F) A) and C)
G) A) and E)

Correct Answer

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You own 600 shares of stock in Avondale Corporation. The company plans to pay a dividend of $2.48 per share in one year and a final liquidating dividend of $20.10 per share two years from now. The required return on Avondale stock is 16.3 percent. What will your dividend income be this year if you use homemade dividends to create two equal annual dividend payments?


A) $6,270
B) $6,712
C) $5,667
D) $6,376
E) $6,400

F) C) and E)
G) B) and D)

Correct Answer

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The equity of Blooming Roses has a total market value of $148,900. Currently, the firm has excess cash of $4,200 and net income of $21,400. There are 1,100 shares of stock outstanding. What will be the percentage change in the stock price per share if the company pays out all of its excess cash as a cash dividend?


A) −3.14 percent
B) −2.82 percent
C) −2.75 percent
D) −3.08 percent
E) 0 percent

F) A) and D)
G) A) and E)

Correct Answer

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Glendale Paving currently has 45,000 shares of stock outstanding that sell for $38 per share. Assume no market imperfections or tax effects exist. What will be the new share price if the firm declares a stock dividend of 22 percent?


A) $46.36
B) $38.00
C) $33.75
D) $31.15
E) $40.00

F) B) and C)
G) D) and E)

Correct Answer

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