Question 1

Assuming no market imperfections,which of the following processes would not be expected to have an effect on share price?

Accepted Answer

A)   Dividend declaration and payment
B)   Stock repurchase
C)   Stock dividend
D)   Stock splitE) A) and C)
F) B) and C)

Question 2

What are the four main ways to implement stock repurchase?

Accepted Answer

There are four main ways to implement a ...

Question 3

Which of the following signals is most likely to elicit a decrease in share price?

Accepted Answer

A)   A repurchase of 5% of the firm's stock
B)   An increase in the regular quarterly dividend
C)   A decrease in the regular quarterly dividend
D)   Borrowing funds in order to pay a cash dividendE) None of the above
F) A) and B)

Question 4

If the total assets of a firm are unaffected by a stock dividend,then:

Accepted Answer

A)   the stock should retain the same price per share.
B)   stock dividends should be preferred by corporations over cash dividends.
C)   an investor's wealth should not be changed.
D)   only bondholders benefit from stock dividends.E) All of the above
F) B) and C)

Question 5

In a two-for-one stock split,each investor would receive one additional share for each share already held.

Accepted Answer

A) True 
 B)False

Question 6

Ignoring the idealized world of MM,why might a higher dividend payout ratio be considered detrimental to firm value?

Accepted Answer

Investors are ultimately interested in a...

Question 7

Which of the following statements is correct about investors in Ajax Industries,which has just announced a three-for-one stock split?

Accepted Answer

A)   Investors will triple their wealth after the split.
B)   Investors' wealth will fall by two-thirds after the split.
C)   Percentage of ownership increases for the investors.
D)   Earnings per share will fall by two-thirds after the split.E) None of the above
F) A) and C)

Question 8

After the payment of a 25% stock dividend,an investor has 500 shares of stock and $400.What did the investor have prior to the stock dividend?

Accepted Answer

A)   300 shares of stock
B)   400 shares of stock and $400
C)   400 shares of stock and $320
D)   625 shares of stock and $400E) A) and B)
F) A) and C)

Question 9

More often than not,the announcement of a stock split does result in a rise in the market price of the stock.

Accepted Answer

A) True 
 B)False

Question 10

With respect to the dividend-payment process,the price of a share of stock can logically be expected to drop on:

Accepted Answer

A)   the payment date.
B)   the date of record.
C)   the ex-dividend date.
D)   the declaration date.E) A) and D)
F) A) and C)

Question 11

A 50% stock dividend provides the same return to an investor as a 50% cash dividend.

Accepted Answer

A) True 
 B)False

Question 12

A stock is currently priced at $65 per share and will pay a $4 dividend in one year.What must the stock sell for in one year to meet investors' expectations of a 15% after-tax yield if dividends are taxed at 28%? Ignore capital gains taxes due to investor timing.

Accepted Answer

A)   $70.75
B)   $71.87
C)   $73.63
D)   $76.00E) A) and D)
F) All of the above

Question 13

A share repurchase is said to be equivalent to the payment of a cash dividend because each strategy:

Accepted Answer

A)   causes share price to decline.
B)   causes share price to stay the same.
C)   creates the same tax liability for the investor.
D)   leaves the firm with the same amount of assets.E) A) and D)
F) C) and D)

Question 14

Automatic dividend reinvestment plans allow firms to:

Accepted Answer

A)   pay dividends on a more frequent schedule.
B)   reduce their cash outflow to shareholders.
C)   transform regular dividends into stock dividends.
D)   avoid the ex-dividend date reduction in stock price.E) A) and D)
F) B) and C)

Question 15

What are the reasons felt by financial executives regarding their firms' reluctance to cut the dividend?

Accepted Answer

In descending order,the reasons are:
1.W...

Question 16

What effect does a stock dividend have on the book and market values of the firm?

Accepted Answer

A)   Book value increases; market value increases
B)   Book value increases; market value decreases
C)   Book value decreases; market value increases
D)   Book and market values remain constantE) B) and D)
F) All of the above

Question 17

Under the idealized conditions of MM,which statement is correct when a firm issues new stock in order to pay a cash dividend on existing shares?

Accepted Answer

A)   The new shares are worth less than the old shares.
B)   The old shares drop in value to equal the new price.
C)   The value of the firm is reduced by the amount of the dividend.
D)   The value of the firm is unaffected.E) None of the above
F) All of the above

Question 18

When a firm announces a two-for-one stock split (in the absence of other new information) ,investors should expect that:

Accepted Answer

A)   earnings per share will fall in half but stock price will remain the same.
B)   stock price will fall in half but earnings per share will remain the same.
C)   both earnings per share and stock price will remain the same.
D)   both earnings per share and stock price will fall by half.E) None of the above
F) C) and D)

Question 19

Briefly discuss each of the chronological "steps" in the process of paying a dividend.

Accepted Answer

The first step in the process of paying ...

Question 20

A dividend clientele effect assumes that:

Accepted Answer

A)   investors prefer higher rather than lower dividends.
B)   shareholders are indifferent regarding dividends.
C)   investors have specific dividend preferences.
D)   investors have identical dividend preferences.E) B) and C)
F) C) and D)

Exam 17: Payout Policy

With respect to the dividend-payment process,the price of a share of stock can logically be expected to drop on:

Correct AnswerverifiedShow Answer

When a firm announces a two-for-one stock split (in the absence of other new information) ,investors should expect that:

Correct AnswerverifiedShow Answer

What effect does a stock dividend have on the book and market values of the firm?

Correct AnswerverifiedShow Answer

After the payment of a 25% stock dividend,an investor has 500 shares of stock and $400.What did the investor have prior to the stock dividend?

Correct AnswerverifiedShow Answer

Ignoring the idealized world of MM,why might a higher dividend payout ratio be considered detrimental to firm value?

Correct AnswerverifiedInvestors are ultimately interested in a...View AnswerShow Answer

Automatic dividend reinvestment plans allow firms to:

Correct AnswerverifiedShow Answer

A 50% stock dividend provides the same return to an investor as a 50% cash dividend.

Correct AnswerverifiedShow Answer

Assuming no market imperfections,which of the following processes would not be expected to have an effect on share price?

Correct AnswerverifiedShow Answer

Which of the following statements is correct about investors in Ajax Industries,which has just announced a three-for-one stock split?

Correct AnswerverifiedShow Answer

What are the four main ways to implement stock repurchase?

Correct AnswerverifiedThere are four main ways to implement a ...View AnswerShow Answer

More often than not,the announcement of a stock split does result in a rise in the market price of the stock.

Correct AnswerverifiedShow Answer

What are the reasons felt by financial executives regarding their firms' reluctance to cut the dividend?

Correct AnswerverifiedIn descending order,the reasons are:1.W...View AnswerShow Answer

A dividend clientele effect assumes that:

Correct AnswerverifiedShow Answer

A share repurchase is said to be equivalent to the payment of a cash dividend because each strategy:

Correct AnswerverifiedShow Answer

A stock is currently priced at $65 per share and will pay a $4 dividend in one year.What must the stock sell for in one year to meet investors' expectations of a 15% after-tax yield if dividends are taxed at 28%? Ignore capital gains taxes due to investor timing.

Correct AnswerverifiedShow Answer

Under the idealized conditions of MM,which statement is correct when a firm issues new stock in order to pay a cash dividend on existing shares?

Correct AnswerverifiedShow Answer

Briefly discuss each of the chronological "steps" in the process of paying a dividend.

Correct AnswerverifiedThe first step in the process of paying ...View AnswerShow Answer

Which of the following signals is most likely to elicit a decrease in share price?

Correct AnswerverifiedShow Answer

If the total assets of a firm are unaffected by a stock dividend,then:

Correct AnswerverifiedShow Answer

In a two-for-one stock split,each investor would receive one additional share for each share already held.

Correct AnswerverifiedShow Answer

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Investors are ultimately interested in a...
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There are four main ways to implement a ...
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In descending order,the reasons are:
1.W...
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The first step in the process of paying ...
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