Question 1

Tattler, Inc. has declared a $4.60 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 20 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Tattler sells for $87 per share, and the stock is about to go ex-dividend. What do you think the ex-dividend price will be?

Accepted Answer

A)   $82.40
B)   $83.32
C)   $85.08
D)   $86.67
E)   $87.00F) None of the above
G) A) and B)

Question 2

Which one of the following statements is correct concerning the taxation of dividends and capital gains?

Accepted Answer

A)   Seventy percent of capital gains derived from stock investments are tax exempt for corporate investors.
B)   Dividends are a form of tax-exempt income for individual investors.
C)   All investors are subject to the same tax rate on dividend income.
D)   Individual investors can defer taxation on both dividends and capital gains.
E)   As of 2003, individual investors pay a 15 percent tax on both dividends and capital gains.F) B) and E)
G) C) and E)

Question 3

Downtown Merchants has paid a quarterly dividend of $0.60 per share for the past two years. This quarter, the firm plans to pay $0.60 plus an additional $0.05. The firm has stated that it uncertain whether it will pay $0.60 or $0.65 per share next quarter. Which one of the following is the best description of the additional $0.05 that is being paid this quarter?

Accepted Answer

A)   Liquidating dividend
B)   Special dividend
C)   Extra dividend
D)   Stock dividend
E)   Normal dividendF) C) and D)
G) B) and D)

Question 4

Haywood and More have a market value balance sheet as shown below. The firm currently has 5,000 shares of stock outstanding at a market price per share of $35.40. Net income is $9,500.  The firm has decided to spend $8,000 and pay an extra cash dividend. What will the firm's PE ratio be after this dividend is paid, all else held constant? Ignore taxes.

Accepted Answer

A)   14.20
B)   16.67
C)   18.63
D)   21.22
E)   24.50F) A) and B)
G) C) and D)

Question 5

Of the following, which two are the best reasons for doing a reverse stock split? I. return a stock to its normal trading range
II)  eliminate small shareholders
III)  reduce shareholder costs
IV)  avoid delisting

Accepted Answer

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

Question 6

Mercury Homes just declared a 4-for 3 stock split. Which of the following occurred as a result of this split? I. number of shares outstanding increased by 1/3
II)  number of shares outstanding decreased by 1/4
III)  price per share increased by 1/3
IV)  price per share decreased by 1/4

Accepted Answer

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

Question 7

Explain how the process of dividend smoothing affects the dividend growth rate as compared to the earnings growth rate.

Accepted Answer

Firms avoid increasing dividends until i...

Question 8

Which one of the following is an argument that dividend policy is irrelevant?

Accepted Answer

A)   Flotation costs as they apply to equities.
B)   Tax laws as they currently exist.
C)   An unsatisfied demand for high-dividend paying stocks.
D)   Current equilibrium in the clientele dividend market.
E)   The current tax exclusion available to corporate investors.F) A) and E)
G) A) and D)

Question 9

Which one of the following is a payment by a firm to its shareholders from any source other than current or accumulated retained earnings?

Accepted Answer

A)   Interest
B)   Distribution
C)   Retained earnings
D)   Dividend
E)   Stock repurchaseF) A) and D)
G) B) and E)

Question 10

Gloria's Boutique has 4,000 shares of stock outstanding at a price per share of $19. What will the price per share be if the firm pays a $1.20 per share dividend? Ignore taxes and market imperfections.

Accepted Answer

A)   $17.80
B)   $18.40
C)   $18.80
D)   $19.00
E)   $20.20F) A) and C)
G) B) and D)

Question 11

As compared to a cash dividend, a share repurchase will do which of the following?

Accepted Answer

A)   Increase both earnings per share and the PE ratio
B)   Increase the earnings per share but not affect the PE ratio
C)   Increase the earnings per share and decrease the PE ratio
D)   Not affect either the earnings per share nor the PE ratio
E)   Not affect the earnings per share but will decrease the PE ratioF) C) and D)
G) A) and B)

Question 12

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 currently paid by the vast majority of firms.
C)   Managers tend to smooth dividends.
D)   Stock prices tend to increase whenever anticipated changes in dividends occur.
E)   Firms commence paying dividends prior to doing any stock repurchases.F) A) and B)
G) B) and C)

Question 13

Twelve days ago, DOG, Inc. 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 DOG, Inc.'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 14

Lester's has a market value balance sheet as shown below. The firm currently has 7,500 shares of stock outstanding at a price per share of $40. Net income is $9,500.  The firm has decided to repurchase $20,000 worth of its outstanding stock. What will the firm's PE ratio be after this repurchase, all else held constant?

Accepted Answer

A)   23.39
B)   28.76
C)   29.47
D)   30.13
E)   32.16F) A) and C)
G) B) and E)

Question 15

Westover Electric is preparing to pay its quarterly dividend of $2.20 a share this quarter. The stock closed at $57.70 a share today. What will the ex-dividend stock price be if the relevant tax rate is 10 percent and all else is held constant?

Accepted Answer

A)   $55.28
B)   $55.50
C)   $55.72
D)   $55.94
E)   $55.99F) A) and E)
G) C) and D)

Question 16

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) None of the above
G) A) and D)

Question 17

Which one of the following factors favors a high dividend payout?

Accepted Answer

A)   Low transaction costs on stock trades
B)   Lower taxes on capital gains than on dividends
C)   Tax deferment on capital gains, but not on dividend income
D)   Flotation costs
E)   Corporate shareholdersF) A) and C)
G) C) and D)

Question 18

Elkins Feed Lot is an all-equity firm with positive net income. Which one of the following will result if the firm pays a cash dividend?

Accepted Answer

A)   Number of shares outstanding will increase
B)   Earnings per share will decrease
C)   Total assets will remain constant
D)   Price-earnings ratio will decrease
E)   Total equity will increaseF) C) and D)
G) D) and E)

Question 19

Davidson Interiors declared a dividend to holders of record on Thursday, October 15, that is payable on Monday, November 2. Suenette purchased 200 shares of Davidson Interiors stock on Monday, October 12 and Jake purchased 100 shares of this stock on the following day. Which one of the following statements is correct given this information?

Accepted Answer

A)   Both Suenette and Jake will receive this dividend.
B)   Suenette will receive the dividend but Jake will not.
C)   Jake will receive the dividend but Suenette will not.
D)   Neither Suenette nor Jake will receive this dividend.
E)   You cannot determine who will or will not receive this dividend based on the information provided.F) A) and E)
G) B) and E)

Question 20

Assume that clienteles exist. Given this assumption, which one of the following statements is correct?

Accepted Answer

A)   A firm can increase its share price by increasing its dividend payout.
B)   Dividend policy is irrelevant as long as each clientele group is currently satisfied.
C)   All firms will adopt a high dividend payout policy.
D)   All dividends become irrelevant.
E)   All firms should adopt a low dividend payout policy.F) C) and D)
G) A) and E)

Exam 14: Dividends and Dividend Policy

Which one of the following statements is correct concerning the taxation of dividends and capital gains?

Correct Answer
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Mercury Homes just declared a 4-for 3 stock split. Which of the following occurred as a result of this split? I. number of shares outstanding increased by 1/3 II) number of shares outstanding decreased by 1/4 III) price per share increased by 1/3 IV) price per share decreased by 1/4

Correct Answer
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As compared to a cash dividend, a share repurchase will do which of the following?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Which one of the following is an argument that dividend policy is irrelevant?

Correct Answer
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Correct Answer
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Which one of the following factors favors a high dividend payout?

Correct Answer
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Assume that clienteles exist. Given this assumption, which one of the following statements is correct?

Correct Answer
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Of the following, which two are the best reasons for doing a reverse stock split? I. return a stock to its normal trading range II) eliminate small shareholders III) reduce shareholder costs IV) avoid delisting

Correct Answer
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Elkins Feed Lot is an all-equity firm with positive net income. Which one of the following will result if the firm pays a cash dividend?

Correct Answer
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Correct Answer
verified

Which one of the following is a payment by a firm to its shareholders from any source other than current or accumulated retained earnings?

Correct Answer
verified

Twelve days ago, DOG, Inc. 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 DOG, Inc.'s opening stock price tomorrow?

Correct Answer
verified

Gloria's Boutique has 4,000 shares of stock outstanding at a price per share of $19. What will the price per share be if the firm pays a $1.20 per share dividend? Ignore taxes and market imperfections.

Correct Answer
verified

Correct Answer
verified

Westover Electric is preparing to pay its quarterly dividend of $2.20 a share this quarter. The stock closed at $57.70 a share today. What will the ex-dividend stock price be if the relevant tax rate is 10 percent and all else is held constant?

Correct Answer
verified

Correct Answer
verified

Explain how the process of dividend smoothing affects the dividend growth rate as compared to the earnings growth rate.

Correct Answer
verified
Firms avoid increasing dividends until i...
View Answer

Exam 14: Dividends and Dividend Policy

Which one of the following statements is correct concerning the taxation of dividends and capital gains?

Correct AnswerverifiedShow Answer

Mercury Homes just declared a 4-for 3 stock split. Which of the following occurred as a result of this split? I. number of shares outstanding increased by 1/3 II) number of shares outstanding decreased by 1/4 III) price per share increased by 1/3 IV) price per share decreased by 1/4

Correct AnswerverifiedShow Answer

As compared to a cash dividend, a share repurchase will do which of the following?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which one of the following is an argument that dividend policy is irrelevant?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following factors favors a high dividend payout?

Correct AnswerverifiedShow Answer

Assume that clienteles exist. Given this assumption, which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Of the following, which two are the best reasons for doing a reverse stock split? I. return a stock to its normal trading range II) eliminate small shareholders III) reduce shareholder costs IV) avoid delisting

Correct AnswerverifiedShow Answer

Elkins Feed Lot is an all-equity firm with positive net income. Which one of the following will result if the firm pays a cash dividend?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following is a payment by a firm to its shareholders from any source other than current or accumulated retained earnings?

Correct AnswerverifiedShow Answer

Twelve days ago, DOG, Inc. 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 DOG, Inc.'s opening stock price tomorrow?

Correct AnswerverifiedShow Answer

Gloria's Boutique has 4,000 shares of stock outstanding at a price per share of $19. What will the price per share be if the firm pays a $1.20 per share dividend? Ignore taxes and market imperfections.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Westover Electric is preparing to pay its quarterly dividend of $2.20 a share this quarter. The stock closed at $57.70 a share today. What will the ex-dividend stock price be if the relevant tax rate is 10 percent and all else is held constant?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Explain how the process of dividend smoothing affects the dividend growth rate as compared to the earnings growth rate.

Correct AnswerverifiedFirms avoid increasing dividends until i...View AnswerShow Answer

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Firms avoid increasing dividends until i...
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