Question 1

What percentage of capital gains are excluded from taxation for corporate shareholders?

Accepted Answer

A)  0 percent
B)  10 percent
C)  25 percent
D)  70 percent
E)  75 percentF) C) and E)
G) B) and D)

Question 2

Dragon Trucking just paid its annual regular cash dividend of $1.08 a share,along with a special dividend of $.12 a share.The company follows a policy of increasing its dividend by 1 percent annually.Which one of the following is the best estimate of the firm's next annual dividend payment?

Accepted Answer

A)  $1.1925
B)  $1.0908
C)  $1.2120
D)  $1.0912
E)  $1.1032F) A) and B)
G) A) and E)

Question 3

Research conducted on firms' dividend policies over time support which one of the following conclusions?

Accepted Answer

A)  Aggregate dividends and stock repurchases have steadily declined in real terms.
B)  Dividends are required to be paid by all public corporations in existence for ten years or more.
C)  Managers tend to smooth dividends.
D)  Stock prices react quickly whenever an anticipated dividend amount is paid.
E)  Firms generally commence paying dividends prior to doing any stock repurchasesF) B) and E)
G) A) and B)

Question 4

Kelso's is considering spending $80,000 on either a stock repurchase or an extra cash dividend.Which one of the following values will be the same whether the firm pays a dividend or repurchases stock? Assume there are no taxes or market imperfections.

Accepted Answer

A)  Number of shares outstanding
B)  Price per share
C)  Earnings per share
D)  Price-earnings (P
E)   ratio
E)  Market value of equity per shareF) None of the above
G) B) and E)

Question 5

Which one of the following increases the number of shares outstanding but does not change a firm's equity account values?

Accepted Answer

A)  Reverse stock split
B)  Cash distribution
C)  Stock split
D)  Liquidation dividend
E)  Special dividendF) All of the above
G) C) and D)

Question 6

The Meat Market has 16,000 shares of stock outstanding at a price per share of $7.What will be the price per share if the firm declares a 3-for-7 reverse stock split?

Accepted Answer

A)  $11.80
B)  $4.50
C)  $3.00
D)  $15.00
E)  $16.33F) B) and D)
G) B) and E)

Question 7

KL Electronics has paid a quarterly dividend of $.42 per share for the past two years.This quarter,the firm plans to pay $.42 plus an additional $.05 per share.The firm has stated that it is uncertain whether it will pay $.42 or $.47 per share next quarter.Which one of the following is the best description of the additional $.05 that is being paid this quarter?

Accepted Answer

A)  Liquidating dividend
B)  Special dividend
C)  Extra dividend
D)  Stock dividend
E)  Normal dividendF) None of the above
G) All of the above

Question 8

Two weeks ago,Jensen' s declared a dividend of $1.34 a share.The ex-dividend date is tomorrow.All else constant,which one of the following is the best estimate of Jensen' s opening stock price tomorrow?

Accepted Answer

A)  $1.34 lower than today's closing price
B)  Today's closing price minus an amount approximately equal to the aftertax value of the dividend
C)  The same as today's closing price since the dividend is expected
D)  $1.34 higher than today's closing price
E)  Today's closing price plus an amount approximately equal to the aftertax value of the dividendF) A) and E)
G) C) and E)

Question 9

The Down Towner has a market value balance sheet as shown below.The firm currently has 12,000 shares of stock outstanding and net income of $17,500 The firm has decided to repurchase 10 percent of its outstanding stock at the current market price and fund that purchase with new debt.After the repurchase there will be ____ shares outstanding at a price per share of ____

Accepted Answer

A)  10,200; $11.50
B)  10,200; $12.65
C)  10,800; $12.65
D)  10,800; $11.50
E)  10,800; $14.05F) C) and E)
G) A) and B)

Question 10

Botanical Gardens Nursery has 7,500 shares of stock outstanding at a market price of $18 a share.The earnings per share are $1.23.The firm has total assets of $384,000 and total liabilities of $146,000.Today,the firm is paying a quarterly cash dividend of $.22 a share.What will be the earnings per share after the dividend is paid if the tax rate on dividends is 15 percent?

Accepted Answer

A)  $1.01
B)  $1.04
C)  $1.23
D)  $1.17
E)  $1.20F) A) and B)
G) A) and D)

Question 11

Global Traders has common stock outstanding at a market price of $46 per share.The total market value of the firm is $5,754,600.The firm plans on liquidating one of its divisions for $620,000 in cash,after taxes,and distributing the proceeds to the shareholders in the form of a liquidating dividend.What will be the amount per share of that dividend?

Accepted Answer

A)  $5.197
B)  $4.956
C)  $4.620
D)  $4.708
E)  $4.782F) C) and D)
G) B) and E) B

Question 12

Fried Foods recently liquidated its fast-food division.That unit represented 30 percent of the firm's overall market value.Prior to the liquidation,the firm's stock was selling for $46 a share,the annual dividend was steady at $1.20 per share,and there were 18,000 shares outstanding.The firm is preparing to distribute the entire liquidation proceeds to shareholders.How much should shareholders expect to receive per share from this liquidating dividend? Ignore taxes.

Accepted Answer

A)  $14.24
B)  $13.30
C)  $14.10
D)  $13.10
E)  $13.80F) A) and D)
G) A) and C)

Question 13

All of the following investors generally receive a tax break on dividend income with the exception of:

Accepted Answer

A)  corporate shareholders.
B)  pension funds.
C)  trust funds.
D)  endowment funds.
E)  individualsF) C) and D)
G) B) and D)

Question 14

Which statement is correct?

Accepted Answer

A)  Tax rates are the key determinant to a company's dividend policy.
B)  Firms are equally likely to increase or decrease their normal dividends per share.
C)  Dividends tend to be more erratic than earnings.
D)  Mature firms are less apt to pay dividends than young firms.
E)  Dividend growth tends to lag earnings growthF) B) and D)
G) C) and D)

Question 15

On which one of the following dates is the determination made as to which shareholders will receive a dividend payment?

Accepted Answer

A)  Date of record
B)  Ex-dividend date
C)  Payment date
D)  Declaration date
E)  Public announcement dateF) D) and E)
G) A) and D) A

Question 16

Which one of the following is an example of a liquidating dividend?

Accepted Answer

A)  Valley Feed Mills recently sold its grain storage facility and is distributing the proceeds of that sale to its shareholders.
B)  Kate's Winery has excess cash that it wishes to distribute to its shareholders in addition to its normal cash dividend.This extra distribution usually occurs about once every year.
C)  Kurt's Music is planning to increase its quarterly dividend by 3 percent.
D)  The Dried Florist is preparing to pay its first annual dividend of $.08 per share.
E)  Hi Tek had an extraordinarily profitable year and has decided to do a one-time only $10 per share cash dividendF) All of the above
G) A) and B)

Question 17

Flemington Farms is evaluating an extra dividend versus a share repurchase.In either case,$10,000 would be spent.Current earnings are $2.10 per share,and the stock currently sells for $52 per share.There are 2,000 shares outstanding.Ignore taxes and other imperfections.The PE ratio will be ____ if the firm issues the dividend as compared to ____ if the firm does the share repurchase.

Accepted Answer

A)  22.38; 22.38
B)  24.87; 22.38
C)  20.23; 24.87
D)  22.38; 20.23
E)  20.23; 22.38F) None of the above
G) C) and D)

Question 18

M&N stock is currently selling for $22 per share.The firm just made an offer to one of its major shareholders to repurchase all the shares owned by that shareholder for $26 per share.What type of offer is being made?

Accepted Answer

A)  Rights offer
B)  Secondary issue
C)  Targeted repurchase
D)  Tender offer
E)  Private issueF) C) and E)
G) B) and D)

Question 19

Miller' s Hardware recently paid $1.21 per share in dividends.The company currently has excess cash and would like to distribute an additional $.35 a share to its shareholders.However,the company is concerned about increasing the dividend by that amount as it will not be able to afford a similar increase in the future and doesn't want to lower the dividend once it has been raised.Which one of the following is probably the best suggestion for distributing the $.35 per share?

Accepted Answer

A)  Pay a special dividend of $.35 per share
B)  Pay an extra cash dividend of $.35 per share
C)  Pay a liquidating dividend of $.35 per share
D)  Increase the regular dividend by $.12 and pay a special dividend of $.23
E)  Increase the regular dividend by $.12 and pay an extra cash dividend of $23F) B) and E)
G) A) and D)

Question 20

Which one of the following is basically equivalent to a 2-for-1 stock split?

Accepted Answer

A)  20 percent stock dividend
B)  25 percent stock dividend
C)  50 percent stock dividend
D)  100 percent stock dividend
E)  200 percent stock dividendF) A) and B)
G) A) and C) D

Exam 14: Dividends and Dividend Policy

What percentage of capital gains are excluded from taxation for corporate shareholders?

Correct Answer
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Dragon Trucking just paid its annual regular cash dividend of $1.08 a share,along with a special dividend of $.12 a share.The company follows a policy of increasing its dividend by 1 percent annually.Which one of the following is the best estimate of the firm's next annual dividend payment?

Correct Answer
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Research conducted on firms' dividend policies over time support which one of the following conclusions?

Correct Answer
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Kelso's is considering spending $80,000 on either a stock repurchase or an extra cash dividend.Which one of the following values will be the same whether the firm pays a dividend or repurchases stock? Assume there are no taxes or market imperfections.

Correct Answer
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Which one of the following increases the number of shares outstanding but does not change a firm's equity account values?

Correct Answer
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The Meat Market has 16,000 shares of stock outstanding at a price per share of $7.What will be the price per share if the firm declares a 3-for-7 reverse stock split?

Correct Answer
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Two weeks ago,Jensen' s declared a dividend of $1.34 a share.The ex-dividend date is tomorrow.All else constant,which one of the following is the best estimate of Jensen' s opening stock price tomorrow?

Correct Answer
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B

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All of the following investors generally receive a tax break on dividend income with the exception of:

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Which statement is correct?

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On which one of the following dates is the determination made as to which shareholders will receive a dividend payment?

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A

Which one of the following is an example of a liquidating dividend?

Correct Answer
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M&N stock is currently selling for $22 per share.The firm just made an offer to one of its major shareholders to repurchase all the shares owned by that shareholder for $26 per share.What type of offer is being made?

Correct Answer
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Which one of the following is basically equivalent to a 2-for-1 stock split?

Correct Answer
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D

Exam 14: Dividends and Dividend Policy

What percentage of capital gains are excluded from taxation for corporate shareholders?

Correct AnswerverifiedShow Answer

Dragon Trucking just paid its annual regular cash dividend of $1.08 a share,along with a special dividend of $.12 a share.The company follows a policy of increasing its dividend by 1 percent annually.Which one of the following is the best estimate of the firm's next annual dividend payment?

Correct AnswerverifiedShow Answer

Research conducted on firms' dividend policies over time support which one of the following conclusions?

Correct AnswerverifiedShow Answer

Kelso's is considering spending $80,000 on either a stock repurchase or an extra cash dividend.Which one of the following values will be the same whether the firm pays a dividend or repurchases stock? Assume there are no taxes or market imperfections.

Correct AnswerverifiedShow Answer

Which one of the following increases the number of shares outstanding but does not change a firm's equity account values?

Correct AnswerverifiedShow Answer

The Meat Market has 16,000 shares of stock outstanding at a price per share of $7.What will be the price per share if the firm declares a 3-for-7 reverse stock split?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Two weeks ago,Jensen' s declared a dividend of $1.34 a share.The ex-dividend date is tomorrow.All else constant,which one of the following is the best estimate of Jensen' s opening stock price tomorrow?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

Correct AnswerverifiedShow Answer

All of the following investors generally receive a tax break on dividend income with the exception of:

Correct AnswerverifiedShow Answer

Which statement is correct?

Correct AnswerverifiedShow Answer

On which one of the following dates is the determination made as to which shareholders will receive a dividend payment?

Correct AnswerverifiedA

Which one of the following is an example of a liquidating dividend?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

M&N stock is currently selling for $22 per share.The firm just made an offer to one of its major shareholders to repurchase all the shares owned by that shareholder for $26 per share.What type of offer is being made?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following is basically equivalent to a 2-for-1 stock split?

Correct AnswerverifiedD

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B

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A

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D