Question 1

Lester's Frozen Foods just paid out $0.50 a share to its shareholders.The cash for these payments came from a large sale of assets,not from any earnings of the firm.What are these payments to shareholders called?

Accepted Answer

A)  dividends
B)  distributions
C)  repurchases
D)  payments-in-kind
E)  stock splitsF) A) and B)
G) None of the above

Question 2

The balance sheet for Apple Pie Corp.is shown here in market value terms.There are 5,000 shares of stock outstanding.   Market Value Balance Sheet  Cash $23,000 Equity $207,000 Fixed assets 184,000 Total $207,000‾ Total $207,000\begin{array}{l}	ext { Market Value Balance Sheet }\\begin{array} { l r l } 	ext { Cash } & \$ 23,000 & 	ext { Equity } \$ 207,000 \	ext { Fixed assets } & 184,000 & \	ext { Total } \quad \underline { \$ 207,000 } &             	ext { Total } \$ 207,000\end{array}\end{array} Market Value Balance Sheet  Cash  Fixed assets  Total $207,000​​$23,000184,000 Total $207,000​ Equity $207,000​​  The company has declared a dividend of $1.80 per share.The stock goes ex-dividend tomorrow.Ignore any tax effects.What will the price of the stock be tomorrow?

Accepted Answer

A)  $18.90
B)  $36.20
C)  $39.60
D)  $52.15
E)  $71.80 F) A) and B)
G) B) and E)

Question 3

Jenningston Mills has a market value equal to its book value.Currently,the firm has excess cash of $1,200,other assets of $5,800,and equity valued at $3,750.The firm has 250 shares of stock outstanding and net income of $420.What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase?

Accepted Answer

A)  $1.83
B)  $1.89
C)  $1.96
D)  $2.00
E)  $2.08F) B) and D)
G) A) and E)

Question 4

South Shore Limited has 21,000 shares of stock outstanding with a par value of $1 per share and a market price of $7.50 a share.The firm just announced a 5-for-2 stock split.What will the par value of the stock be after the split?

Accepted Answer

A)  $0.40
B)  $0.80
C)  $1.00
D)  $1.40
E)  $1.60F) D) and E)
G) A) and E)

Question 5

Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding?

Accepted Answer

A)  special dividend
B)  stock split
C)  share repurchase
D)  rights offer
E)  liquidating dividendF) A) and B)
G) A) and C)

Question 6

Prezario's has 25,000 shares of stock outstanding with a par value of $1 per share.The current market value of the firm is $847,000.Currently,the retained earnings account balance is $428,000 and the capital in excess of par value account balance is $187,000.The company just announced a 3-for-1 stock split.What is the common stock account balance after the stock split?

Accepted Answer

A)  $8,333
B)  $25,000
C)  $75,000
D)  $77,333
E)  $232,000F) A) and B)
G) All of the above

Question 7

Which of the following tends to increase the ability of a shareholder to create his or her own homemade dividend policy?
I.low taxes on capital gains
II.dividend reinvestment plans
III.large holdings of shares
IV.low cost equity purchases

Accepted Answer

A)  II only
B)  II and III only
C)  I, II, and III only
D)  II, III, and IV only
E)  I, II, III, and IVF) B) and D)
G) B) and E)

Question 8

The Olive Vase has 56,000 shares of stock outstanding with a par value of $1 per share and a market value of $11 a share.The company just announced a 3-for-4 reverse stock split.Currently,you own 500 shares of this stock.What will the total value of your shares be after the reverse stock split?

Accepted Answer

A)  $3,300
B)  $4,400
C)  $5,500
D)  $5,867
E)  $6,333F) A) and E)
G) B) and C)

Question 9

Steve owns 3,000 shares of NOP,Inc.stock,which he purchased six years ago at a price of $22 a share.Today,these shares are selling for $68 each.Assume the current tax laws are such that Steve is subject to a tax rate of 25 percent on both his dividend income and his capital gains.From Steve's point of view,a stock repurchase today: (Ignore costs)

Accepted Answer

A)  is equivalent to a cash dividend in all respects.
B)  is more desirable than a cash dividend in respect to taxes.
C)  will result in the same tax liability as an equivalent cash dividend.
D)  is more highly taxed than a cash dividend.
E)  is totally unacceptable to him.F) B) and E)
G) All of the above

Question 10

Which one of the following statements related to stock repurchases is correct?

Accepted Answer

A)  U.S.industrial firms have increased their stock repurchases every year for each of the past twenty years.
B)  A stock repurchase can be used as a means for incumbent officers to retain control of a firm.
C)  A tender offer indicates that a firm is willing and able to purchase how ever many shares the current shareholders wish to sell.
D)  All stock repurchases must be identified as such to the selling party.
E)  Stock repurchases can be a relatively tax-efficient method of distributing cash to shareholders.F) A) and D)
G) B) and D)

Question 11

The Peanut Shack has 6,5000 shares of stock outstanding with a par value of $1 per share.The current market value of the firm is $145,600.The company just announced a 3-for-2 stock split.What will the market price per share be after the split?

Accepted Answer

A)  $12.14
B)  $14.93
C)  $16.18
D)  $28.20
E)  $36.40F) C) and E)
G) B) and D)

Question 12

The common stock of Pierson Enterprises has historically had a high dividend yield and is expected to continue to do so.As a result,the majority of its shareholders are individuals and entities that are seeking a regular source of cash income.Most of these shareholders pay either no taxes or a relatively low amount of taxes.The fact that most of these shareholders have similar characteristics is referred to by which one of the following terms?

Accepted Answer

A)  information content effect
B)  clientele effect
C)  efficient markets hypothesis
D)  distribution effect
E)  market reaction effectF) B) and E)
G) All of the above

Question 13

Jean's Warehouse has 16,000 shares of stock outstanding.The current market value of the firm is $768,000.The company has retained earnings of $130,000,paid in surplus of $321,000,and a common stock account value of 16,000.The company is planning a 5-for-3 stock split.What will the retained earnings account value be after the split?

Accepted Answer

A)  $73,800
B)  $130,000
C)  $153,600
D)  $205,000
E)  $245,500F) A) and E)
G) A) and D)

Question 14

You are the CFO of a non-dividend paying firm that currently has excess cash reserves.You are preparing for an internal management meeting where dividends are on the agenda.You know that the CEO favors the commencement of a dividend program.You,however,oppose any dividend plan at this time.Write a good argument that you can use in the meeting to support your position.

Accepted Answer

While it is true that the firm currently...

Question 15

Which one of the following involves a payment in shares by a stock issuer that increases the number of shares a shareholder owns but also decreases the value per share?

Accepted Answer

A)  cash dividend
B)  stock dividend
C)  stock repurchase
D)  stock split
E)  reverse stock splitF) B) and C)
G) A) and B)

Question 16

Mario's has 18,000 shares of stock outstanding with a par value of $1 per share and a market price of $4 a share.The balance sheet shows $18,000 in the common stock account,$368,000 in the paid in surplus account,and $64,000 in the retained earnings account.The firm just announced a 5-for-1 stock split.What will the paid in surplus account value be after the split?

Accepted Answer

A)  $336,000
B)  $368,000
C)  $426,000
D)  $548,000
E)  $606,000F) A) and C)
G) C) and D)

Question 17

Delaware Trust has 450 shares of common stock outstanding at a market price per share of $27.Currently,the firm has excess cash of $400,total assets of $28,900,and net income of $1,320.The firm has decided to pay out all of its excess cash as a cash dividend.What will the earnings per share be after this dividend is paid?

Accepted Answer

A)  $2.69
B)  $2.86
C)  $2.93
D)  $3.07
E)  $3.24F) C) and D)
G) A) and E)

Question 18

Steve purchased 300 shares of Alpha Beta stock on May 9.On May 15,he purchased another 300 shares and then on May 22 he purchased a final 400 shares of Alpha Beta stock.The company declared a dividend of $1.60 a share on April 30 to holders of record on Friday,May 23.The dividend is payable on June 2.How much dividend income will Steve receive on June 2 from Alpha Beta?

Accepted Answer

A)  $0
B)  $480
C)  $960
D)  $1,200
E)  $1,600F) A) and D)
G) All of the above

Question 19

Which of the following shareholders tend to favor a high dividend policy?
I.retired individuals
II.endowment funds
III.corporate investors
IV.investors with high dividend tax rates but low capital gains tax rates

Accepted Answer

A)  I and III only
B)  II and IV only
C)  I, II, and III only
D)  II, III, and IV only
E)  I, II, III, and IVF) A) and C)
G) A) and E)

Question 20

All else equal,the market value of a stock will tend to decrease by roughly the aftertax value 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 D)
G) C) and D)

Exam 17: Dividends and Payout Policy

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

Correct Answer
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Correct Answer
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South Shore Limited has 21,000 shares of stock outstanding with a par value of $1 per share and a market price of $7.50 a share.The firm just announced a 5-for-2 stock split.What will the par value of the stock be after the split?

Correct Answer
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Which one of the following statements related to stock repurchases is correct?

Correct Answer
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Lester's Frozen Foods just paid out $0.50 a share to its shareholders.The cash for these payments came from a large sale of assets,not from any earnings of the firm.What are these payments to shareholders called?

Correct Answer
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The Peanut Shack has 6,5000 shares of stock outstanding with a par value of $1 per share.The current market value of the firm is $145,600.The company just announced a 3-for-2 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
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Correct Answer
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Correct Answer
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While it is true that the firm currently...
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Which of the following tends to increase the ability of a shareholder to create his or her own homemade dividend policy? I.low taxes on capital gains II.dividend reinvestment plans III.large holdings of shares IV.low cost equity purchases

Correct Answer
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Which one of the following involves a payment in shares by a stock issuer that increases the number of shares a shareholder owns but also decreases the value per share?

Correct Answer
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Correct Answer
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Correct Answer
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Which of the following shareholders tend to favor a high dividend policy? I.retired individuals II.endowment funds III.corporate investors IV.investors with high dividend tax rates but low capital gains tax rates

Correct Answer
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Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding?

Correct Answer
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The Olive Vase has 56,000 shares of stock outstanding with a par value of $1 per share and a market value of $11 a share.The company just announced a 3-for-4 reverse stock split.Currently,you own 500 shares of this stock.What will the total value of your shares be after the reverse stock split?

Correct Answer
verified

Exam 17: Dividends and Payout Policy

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

South Shore Limited has 21,000 shares of stock outstanding with a par value of $1 per share and a market price of $7.50 a share.The firm just announced a 5-for-2 stock split.What will the par value of the stock be after the split?

Correct AnswerverifiedShow Answer

Which one of the following statements related to stock repurchases is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Lester's Frozen Foods just paid out $0.50 a share to its shareholders.The cash for these payments came from a large sale of assets,not from any earnings of the firm.What are these payments to shareholders called?

Correct AnswerverifiedShow Answer

The Peanut Shack has 6,5000 shares of stock outstanding with a par value of $1 per share.The current market value of the firm is $145,600.The company just announced a 3-for-2 stock split.What will the market price per share be after the split?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedWhile it is true that the firm currently...View AnswerShow Answer

Which of the following tends to increase the ability of a shareholder to create his or her own homemade dividend policy? I.low taxes on capital gains II.dividend reinvestment plans III.large holdings of shares IV.low cost equity purchases

Correct AnswerverifiedShow Answer

Which one of the following involves a payment in shares by a stock issuer that increases the number of shares a shareholder owns but also decreases the value per share?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following shareholders tend to favor a high dividend policy? I.retired individuals II.endowment funds III.corporate investors IV.investors with high dividend tax rates but low capital gains tax rates

Correct AnswerverifiedShow Answer

Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding?

Correct AnswerverifiedShow Answer

The Olive Vase has 56,000 shares of stock outstanding with a par value of $1 per share and a market value of $11 a share.The company just announced a 3-for-4 reverse stock split.Currently,you own 500 shares of this stock.What will the total value of your shares be after the reverse stock split?

Correct AnswerverifiedShow Answer

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While it is true that the firm currently...
View Answer

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