Question 1

Stephanie owns 300 shares of Blasco stock. The company recently issued a statement that it will pay a dividend per share of $.80 this year and a $.40 per share dividend next year. Stephanie does not want any dividend this year but does want as much dividend income as possible next year. Her required return on this stock is 10 percent. Ignoring taxes, what will Stephanie's total homemade dividend be next year?

Accepted Answer

The answer of Stephanie owns 300 shares of Blasco stock....

Question 2

The board of directors of DDT Inc. declared a dividend of $0.75 per share payable on Monday, January 28 to shareholders of record as of Monday, January 14. You owned 500 shares of DDT on Wednesday, January 9 when the price was $7.50 per share. Under TSX rules and assuming no taxes and perfect markets, if you sell your 500 shares of DDT on Friday, January 11, what price will you receive, all else the same?

Accepted Answer

Since you sold your shares before the record date (January 14), you will not receive the dividend. Therefore, the price you receive for selling your shares is simply the share price on the day you sold them (January 11) times the number of shares. The share price on January 9 was $7.50, and assuming no price change and perfect markets, it would be the same on January 11. So, the calculation is 500 shares * $7.50 = $3,750. However, the dividend value should be subtracted because the question implies the dividend value might be factored into the selling price due to market expectations, but since you're selling before the ex-dividend date, you're not entitled to the dividend, and the buyer would be. This was a mistake in my explanation; the correct interpretation should be that since you're selling before the ex-dividend date, the price you receive is simply the current market price without any adjustments for the dividend. Therefore, the correct answer is simply the market value of the shares: 500 shares * $7.50 = $3,750. My initial explanation mistakenly considered adjusting the selling price for the dividend, which is incorrect in this context. The correct answer, based on the straightforward calculation of shares times the share price, is indeed $3,750, without needing to adjust for the dividend since it's not relevant to the selling price received before the ex-dividend date.

Question 3

The Mores Clothing Depot maintains a debt-equity ratio of.50 and follows a residual dividend policy. The firm needs $2,700 for new investments next year. The after-tax earnings this year are $1,700. What is the amount that the Clothing Depot will pay out in dividends for this year?

Accepted Answer

The answer of The Mores Clothing Depot maintains a debt-equity...

Question 4

A firm has a market value equal to its book value. Currently, the firm has excess cash of $500 and other assets of $7,500. Equity is worth $8,000. The firm has 250 shares of stock outstanding and net income of $1,120. The firm is going to use all of its excess cash to repurchase shares of stock. What will the stock price per share be after the stock repurchase is completed?

Accepted Answer

The answer of A firm has a market value equal...

Question 5

The Peanut Shop has 5,000 shares of stock outstanding with a par value of $1.00 per share. The current market value of the firm is $390,000. The company just announced a 3-for-1 stock split. What will the market price per share be after the split?

Accepted Answer

The answer of The Peanut Shop has 5,000 shares of...

Question 6

On May 18^th, you purchased 1,000 shares of BuyLo stock. On June 5^th, you sold 200 shares of this stock for $21 a share. You sold an additional 400 shares on July 8^that a price of $22.50 a share. The company declared a $.50 per share dividend on June 25^thto holders of record as of Thursday, July 10^th. This dividend is payable on July 31^st. How much dividend income will you receive on July 31^stas a result of your ownership of BuyLo stock?

Accepted Answer

The answer of On May 18^th, you purchased 1,000 shares...

Question 7

The Winston Co. has 120,000 shares of stock outstanding. The current market value of the firm is $4.5 million. The company has retained earnings of $2.1 million. The company is planning a 3-for-1 stock split. What will the market price per share be after the split?

Accepted Answer

The market value of the firm remains the same before and after the split, $4.5 million. Before the split, there are 120,000 shares, so after a 3-for-1 split, there will be 120,000 * 3 = 360,000 shares. The market price per share after the split is $4.5 million / 360,000 shares = $12.50.

Question 8

Mario's has 18,000 shares of stock outstanding with a par value of $1.00 per share and a market price of $33 a share. The balance sheet shows $18,000 in the common stock account, $285,000 in the paid in surplus account, and $162,000 in the retained earnings account. The firm just announced a 5-for-3 stock split. What will the paid in surplus account value be after the split?

Accepted Answer

A stock split does not affect the paid in surplus account. It only changes the number of shares and the par value per share. Therefore, the paid in surplus account remains at $285,000 after the split.

Question 9

The Tinslow Co. has 125,000 shares of stock outstanding at a market price of $93 a share. The company has just announced a 7-for-3 stock split. What will the market price per share be after the split?

Accepted Answer

Before the split, the total value of the shares was: 
125,000 shares x $93/share = $11,625,000

After the split, the number of shares will be:
125,000 x 7/3 = 291,666.67 shares (rounded to the nearest whole share)

The new market price per share will be:
$11,625,000 / 291,666.67 shares = $39.86/share

Therefore, the answer is B: $39.86.

Question 10

On January 6, you purchased 700 shares of Kulpepper Distributors stock. On July 12, you sold 400 shares of this stock for $34 per share. You sold an additional 200 shares on July 14 at a price of $33.40 per share. The company declared a $.75 per share dividend on June 16 to holders of record as of Tuesday, July 18. This dividend is payable on August 10. How much dividend income will you receive on August 10 as a result of your ownership Kulpepper stock?

Accepted Answer

Since dividends are paid to holders of record as of a specific date, and you owned 700 shares before selling any, but sold 400 shares on July 12 and another 200 shares on July 14, you would still be the holder of record for 100 shares on July 18 (700 - 400 - 200 = 100). Therefore, you would receive a dividend for 100 shares at $.75 per share, which equals $75 (100 x $.75 = $75). The correct answer is not listed among the options provided, indicating a possible mistake in the question or the answer choices.

Question 11

Robinson's has 15,000 shares of stock outstanding with a market price of $36 per share. The balance sheet shows $330,000 in the common stock account and $189,000 in the retained earnings account. The firm just announced a 3-for-2 stock split. What will the market price per share be after the split?

Accepted Answer

In a 3-for-2 stock split, for every 2 shares an investor holds, they receive 3 shares. This increases the number of shares by a factor of 1.5 (3 divided by 2). The market price adjusts inversely to maintain the same market capitalization. Therefore, the new price per share is $36 (original price) divided by 1.5 (split factor), resulting in $24 per share.

Question 12

The Retail Outlet has 6,000 shares of stock outstanding with a book value of $1.00 per share. The current market value of the firm is $420,000. The balance sheet shows retained earnings of $234,000. The company just announced a 2-for-1 stock split. What will the retained earnings account balance be after the split?

Accepted Answer

A stock split does not affect the retained earnings account balance. Therefore, the retained earnings will remain at $234,000 after the 2-for-1 stock split.

Question 13

Robinson's has 15,000 shares of stock outstanding with a market price of $36 per share. The balance sheet shows $330,000 in the common stock account and $189,000 in the retained earnings account. The firm just announced a 3-for-2 stock split. What will the value of the retained earnings account be after the split?

Accepted Answer

The value of the retained earnings account remains unchanged at $189,000 after a stock split. A stock split increases the number of shares outstanding but does not affect the balances in the common stock or retained earnings accounts.

Question 14

JimGyms has the following quarterly earnings projections. The company retains 60% of its earnings and follows a stable dividend policy each year. What is the dividend for the 2^ndquarter?

Accepted Answer

The answer of JimGyms has the following quarterly earnings projections....

Question 15

The board of directors of DDT Inc. has declared a dividend of $0.75 per share payable on Monday, January 28 to shareholders of record as of Monday, January 14. Under TSX rules, if you bought 500 shares of DDT stock on Friday, January 11 for $7.50 per share, how much will you receive in dividends?

Accepted Answer

The answer of The board of directors of DDT Inc....

Question 16

You own stock in a firm that has 1.25 million shares outstanding. The current stock price is $13.50 per share. If the company does a 3-for-1 stock split, what would you expect the stock price to be after the split?

Accepted Answer

In a 3-for-1 stock split, each share is divided into three shares, reducing the stock price to one-third of its original value. Therefore, $13.50 divided by 3 equals $4.50.

Question 17

You purchased 200 shares of ABC stock on July 15^th. On July 20^th, you purchased another 100 shares and then on July 21^styou purchased your final 200 shares of ABC stock. The company declared a dividend of $1.10 a share on July 5^thto holders of record on Friday, July 23^rd. The dividend is payable on July 31^st. How much dividend income will you receive on July 31^stfrom ABC?

Accepted Answer

The correct answer is C. $330. The dividend was declared on July 5th, so you are only entitled to dividends on the shares you owned on that date. You purchased 200 shares on July 15th, so you will receive dividends on those shares. You purchased another 100 shares on July 20th, but those shares were not purchased until after the record date, so you will not receive dividends on those shares. You purchased your final 200 shares on July 21st, but those shares were also purchased after the record date, so you will not receive dividends on those shares either. Therefore, you will receive dividends on 200 shares, which will total $330 ($1.10 per share x 200 shares = $330).

Question 18

Robinson's has 15,000 shares of stock outstanding with a market price of $36 per share. The balance sheet shows $330,000 in the common stock account and $189,000 in the retained earnings account. The firm just announced a 3-for-2 stock split. What will the value of the common stock account be after the split?

Accepted Answer

The value of the common stock account remains unchanged at $330,000 after a stock split. Stock splits increase the number of shares outstanding but do not affect the total value of the equity accounts on the balance sheet.

Question 19

On January 2, the board of directors of DDT Inc. declared a dividend of $0.75 per share payable on Monday, January 28 to shareholders of record as of Monday, January 14. Under TSX rules, if you bought 500 shares of DDT stock on Friday, January 4 for $7.50 per share, how much will you receive in dividends?

Accepted Answer

To receive the dividend, you must be a shareholder of record as of Monday, January 14. Since you bought the shares on January 4, you will be the shareholder of record on the record date. The dividend is $0.75 per share, and with 500 shares, the total dividend payment will be 500 shares * $0.75/share = $375.00.

Question 20

Letto and Sons has a market value equal to its book value. Currently, the firm has excess cash of $250 and other assets of $16,800. Equity is worth $9,500. Letto has 300 shares of stock outstanding and net income of $550. What will the stock price per share be if the firm pays out its excess cash as a cash dividend?

Accepted Answer

The answer of Letto and Sons has a market value...

Quiz 17: Dividends and Dividend Policy