Question 1

Suppose a firm has a retention ratio of 25 percent, net income of $30 million, and 5 million shares outstanding. What would be the dividend per share paid out on the firm's stock?

Accepted Answer

The answer of Suppose a firm has a retention ratio...

Question 2

Suppose a firm pays total dividends of $250,000 out of net income of $2 million. What would the firm's payout ratio be?

Accepted Answer

The payout ratio is calculated as the total dividends divided by the net income. So, $250,000 / $2,000,000 = 0.125 or 12.5%.

Question 3

Which of the following is an exchange of existing shares for a different (usually larger) number of "new shares," with proportionately different par and market values?

Accepted Answer

A stock split is when a company divides its existing shares into multiple shares to boost the liquidity of the shares. Although the number of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts, because the split does not add any real value.

Question 4

Suppose a firm has a retention ratio of 35 percent, net income of $35 million, and 10 million shares outstanding. What would be the dividend per share paid out on the firm's stock?

Accepted Answer

The firm retains 35% of its net income, meaning it pays out 65% as dividends. The total dividends paid out is 65% of $35 million, which is $22.75 million. With 10 million shares outstanding, the dividend per share is $22.75 million / 10 million shares = $2.275.

Question 5

Suppose a firm has a retention ratio of 35 percent and net income of $2 million. How much does it pay out in dividends?

Accepted Answer

The firm retains 35% of its net income, meaning it pays out 65% as dividends. 65% of $2 million is $1.3 million.

Question 6

Suppose a firm pays total dividends of $25,000 out of net income of $100,000. What would the firm's payout ratio be?

Accepted Answer

The payout ratio is calculated as the total dividends divided by the net income. Here, it is $25,000 / $100,000 = 0.25 or 25%.

Question 7

Suppose a firm pays total dividends of $200,000 out of net income of $2.5 million. What would the firm's payout ratio be?

Accepted Answer

The payout ratio is calculated by dividing the total dividends by the net income. So, $200,000 / $2,500,000 = 0.08 or 8%.

Question 8

Suppose a firm pays total dividends of $50,000 out of net income of $500,000. What would the firm's payout ratio be?

Accepted Answer

The payout ratio is calculated as the total dividends divided by the net income, which is $50,000 / $500,000 = 0.10 or 10%.

Question 9

Suppose a firm has a retention ratio of 80 percent, net income of $10 million, and 2 million shares outstanding. What would be the dividend per share paid out on the firm's stock?

Accepted Answer

The dividend payout ratio is the opposite of the retention ratio. If the retention ratio is 80%, the dividend payout ratio is 20% (100% - 80%). With a net income of $10 million, the total dividends paid are 20% of $10 million, which is $2 million. Dividing this by the 2 million shares outstanding gives a dividend per share of $1.00.

Question 10

Which of the following is described as a firm buying back shares of its own stock?

Accepted Answer

Repurchase or buyback refers to a company buying back its own shares from the marketplace, which can increase the value of remaining shares by reducing the supply.

Question 11

Suppose a firm has a retention ratio of 10 percent, net income of $40 million, and 4 million shares outstanding. What would be the dividend per share paid out on the firm's stock?

Accepted Answer

Dividend per share = Net income * Retention ratio / Number of shares outstanding= $40 million * 10% / 4 million shares= $10 million / 4 million shares= $2.50 per share

Question 12

Suppose a firm has a retention ratio of 25 percent, net income of $21 million, and 3 million shares outstanding. What would be the dividend per share paid out on the firm's stock?

Accepted Answer

The firm retains 25% of its net income, meaning it pays out 75% as dividends. The total dividends paid out is 75% of $21 million, which is $15.75 million. Dividing this by 3 million shares gives a dividend per share of $5.25.

Question 13

If a firm has retained earnings of $40 million, a common shares account of $50 million, and additional paid-in-capital of $25 million, how much would be transferred in (or out) of these accounts in response to a 40 percent stock dividend, respectively?

Accepted Answer

A 40% stock dividend means that for every 100 shares of common stock outstanding, the firm will issue an additional 40 shares. This will increase the number of shares outstanding by 40%, from 50 million to 70 million.To account for this, the firm will need to transfer 40% of its retained earnings and additional paid-in-capital to the common shares account. This will increase the common shares account by $20 million (40% of $50 million) and decrease the retained earnings and additional paid-in-capital accounts by $16 million (40% of $40 million) and $10 million (40% of $25 million), respectively.

Question 14

If a firm has retained earnings of $10 million, a common shares account of $15 million, and additional paid-in-capital of $5 million, how much would be transferred in (or out) of these accounts in response to a 50 percent stock dividend, respectively?

Accepted Answer

The answer of If a firm has retained earnings of...

Question 15

Which of the following is a repurchase where the firm simply buys shares of its own stock on the stock market just like any other investor would?

Accepted Answer

Open-market stock repurchase is when a firm buys shares of its own stock on the stock market, similar to any other investor, without a fixed offer to shareholders.

Question 16

Which of the following is an offer announced publicly that specifies in advance a single purchase price, the number of shares sought, and the duration of the offer?

Accepted Answer

A fixed-price tender offer is a public solicitation to all shareholders requesting them to sell their shares at a specified price, within a certain period of time, and often for a specific number of shares. This contrasts with open-market repurchases where the company buys back its own shares on the open market without specifying the price in advance or the total number of shares it intends to buy.

Question 17

Suppose a firm has a retention ratio of 15 percent, net income of $60 million, and 15 million shares outstanding. What would be the dividend per share paid out on the firm's stock?

Accepted Answer

Dividend per share = Net income * Retention ratio / Number of shares outstanding= $60 million * 15% / 15 million shares= $0.60 per share

Question 18

Suppose a firm has a retention ratio of 40 percent and net income of $10 million. How much does it pay out in dividends?

Accepted Answer

The firm retains 40% of its net income, meaning it pays out 60% as dividends. 60% of $10 million is $6 million.

Question 19

A pro-rata distribution of additional shares of stock to the current owners of the stock is which of the following?

Accepted Answer

A stock dividend involves distributing additional shares of stock to the current owners, based on the proportion of shares they already own, without requiring them to invest more money.

Question 20

Suppose a firm pays total dividends of $100,000 out of net income of $1 million. What would the firm's payout ratio be?

Accepted Answer

The payout ratio is calculated by dividing the total dividends paid by the net income, so $100,000 / $1,000,000 = 0.10 or 10%.

Quiz 17: Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts