Question 1

Explain the meaning of the dividend clientele effect and why it is important.

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Question 2

Provide a deﬁnition for the term information content effect.

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Question 3

Provide a deﬁnition for the term trading range.

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Question 4

Provide a deﬁnition for the term stripped common shares.

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Question 5

Provide a deﬁnition for the term clientele effect.

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Question 6

Provide a deﬁnition for the term stock split.

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Question 7

List and brieﬂy explain the ﬁve main goals (in order) of a compromise dividend policy.

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Question 8

Provide a deﬁnition for the term residual dividend approach.

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Question 9

Provide a deﬁnition for the term target payout ratio.

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Question 10

Suppose the tax laws were revised to exempt dividend income received by individuals from
taxation. How would this change affect the dividend versus stock repurchase decision assuming all
else is equal?

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Question 11

Stock prices tend to increase after a stock split. What might cause this to occur?

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Question 12

A ﬁrm ﬁnds that it has an unusual amount of extra cash at the end of its ﬁscal year. It is considering
pursuing one of the following as a means for distributing it to the shareholders. What are the pros
and cons of each?
It could pay an extra cash dividend
It could increase its regular dividend
It can use the money to repurchase stock

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Question 13

Provide a deﬁnition for the term reverse split.

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Question 14

Provide a deﬁnition for the term repurchase.

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Question 15

What are some of the key factors, as ranked by ﬁnancial executives, which affect company dividend
decisions?

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Question 16

Positive NPV projects enhance shareholder wealth. However, in some cases the payment of
dividends limits the number of positive NPV projects a ﬁrm can take. Why, then, shouldn't
shareholders prefer a residual dividend policy?

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Question 17

You own 100 shares of stock in SplitsVille Corp. Over the past three days, SplitsVille has done the
following: It ﬁrst split its stock 2-for-1. One day later it declared a 100% stock dividend. After one
more day it executed a 1-for-4 reverse split. If you did not buy or sell any shares in the ﬁrm over this
period, how many shares of stock did you have after EACH transaction? What would you assume
happened to the price of the ﬁrm's stock as a result of these activities?

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Question 18

It has been shown that, in the absence of taxes and other market imperfections, ﬁrm value will be
unaffected by dividend policy. Explain the logic behind this conclusion. Next, describe three real-
world factors that may cause one dividend policy to be preferable to another.

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Quiz 17: Dividends and Payout Policy