Question 1

Billingsley United declared a $0.20 a share dividend on Thursday, October 16. The dividend will be paid on Monday, November 10 to shareholders of record on Friday, October 31. Which one of the following is the ex-dividend date?

Accepted Answer

B

Question 2

The last date on which you can purchase shares of stock and still receive the dividend is the date which is _____ business days prior to the date of record.

Accepted Answer

The last date on which you can purchase shares of stock and still receive the dividend is known as the ex-dividend date. This date is normally set two business days before the record date. Therefore, investors must purchase shares at least three business days before the record date to ensure that they receive the dividend. Choice C) 3 is the most accurate answer.

Question 3

Which one of the following statements related to cash dividends is correct?

Accepted Answer

A dividend is not considered a liability until it has been declared by the board of directors. Until that point, it is simply a potential cash outflow. Therefore, statement B is correct.

Statements A, C, D, and E are not correct.

A is incorrect because extra cash dividends can be repeated in the future if the company's board of directors decides to declare them.

C is incorrect because a company is not legally obligated to continue paying dividends, even if it has done so for many consecutive years.

D is incorrect because regular cash dividends do not reduce paid-in capital. Instead, they are paid out of a company's earnings or accumulated profits.

E is incorrect because the dividend yield expresses the annual dividend as a percentage of the stock price, not net income.

Question 4

Which one of the following refers to the ability of shareholders to undo a firm's dividend policy and create an alternative dividend policy by reinvesting dividends or selling shares of stock?

Accepted Answer

This refers to the concept of homemade dividend policy, where shareholders can create their own desired dividend policy by either reinvesting dividends or selling shares of stock to generate their own desired cash flow from the investment. This allows shareholders to effectively bypass the firm's dividend policy and create their own customized approach. The other options are not relevant to this concept.

Question 5

Dividend payments are mailed on which one of the following dates?

Accepted Answer

Dividend payments are mailed on the date of payment, which is the date that the company has designated to distribute the dividends to its shareholders.

Question 6

What is the information content effect?

Accepted Answer

The information content effect refers to the financial market's reaction to a change in the amount of a firm's dividend. It indicates the degree to which new information affects stock prices, which can vary depending on the type and relevance of the information. Choices A, B, C, and D are all incorrect as they do not accurately describe the information content effect.

Question 7

Which one of the following dates is used to determine the names of shareholders who will receive a dividend payment?

Accepted Answer

The date of record is used to determine the names of shareholders who will receive a dividend payment.

Question 8

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 stock dividend 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.

Question 9

A reverse stock split is defined as:

Accepted Answer

A reverse stock split is a decrease in the number of shares outstanding, but it does not affect owner's equity. This means that the value of each share will increase, but the total value of the company remains the same.

Question 10

Taylor's Tools declared a $0.48 a share dividend on Friday, March 7. The dividend will be paid on Monday, April 7. The ex-dividend date is Tuesday, March 18. What is the record date?

Accepted Answer

The answer of Taylor's Tools declared a $0.48 a share...

Question 11

Bell Weather Markets has recently sold for as little as $8 a share and as much as $15 a share. The difference between these two prices is referred to as the:

Accepted Answer

The difference between the highest and lowest price at which a stock is sold during a particular period is known as the trading range. Therefore, the correct answer is C) trading range. A) price variance is a measure of how much the actual price of a security differs from its expected price. B) bid-ask spread is the difference between the highest price a buyer is willing to pay for a security (the bid) and the lowest price a seller is willing to accept (the ask). D) opening price is the price at which a security starts trading at the beginning of a trading session. E) closing price is the price at which a security ends trading at the end of a trading session.

Question 12

The board of directors of Wilson Sporting Equipment met this afternoon and passed a resolution to pay a cash dividend of $0.42 a share next month. In relation to this dividend, today is referred to as which one of the following dates?

Accepted Answer

The declaration date is the date on which the board of directors declares the dividend and publicly announces it. This is the day on which Wilson Sporting Equipment's board of directors passed a resolution to pay a cash dividend of $0.42 a share next month.

Question 13

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

The situation described is an example of the clientele effect, which occurs when a stock attracts investors with similar characteristics, such as a preference for a high dividend yield.

Question 14

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 stock split increases the number of shares outstanding without affecting the total equity of a firm. For example, if a company has 1 million shares outstanding with a market value of $100 per share, a 2-for-1 stock split would double the number of shares outstanding to 2 million and halve the market value per share to $50, resulting in no change in the total equity of the firm ($100 million before and after the split). However, a stock split does dilute the ownership percentage of existing shareholders and may increase the liquidity and affordability of the stock.

Question 15

Kate purchased 500 shares of Fast Deliveries stock on Wednesday, July 7^th. Ted purchased 100 shares of Fast Deliveries stock on Thursday, July 8^th. Fast Deliveries declared a dividend on June 20^th to shareholders of record on July 12^th and payable on August 1^st. Which one of the following statements concerning the dividend paid on August 1^st is correct given this information?

Accepted Answer

Fast Deliveries declared the dividend on June 20^th to shareholders of record on July 12^th. This means that shareholders who purchased the stock before July 12^th are entitled to the dividend. Kate purchased the shares on July 7^th, so she is entitled to the dividend. However, Ted purchased the shares on July 8^th, after the record date of July 12^th, so he is not entitled to the dividend. Therefore, the correct answer is B: Kate is entitled to the dividend but Ted is not.

Question 16

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

These payments are called distributions because they are not derived from the company's earnings but rather from the proceeds of a sale of assets. Dividends typically come from earnings, making "distributions" the correct term for payments from other sources like asset sales.

Question 17

The ex-dividend date is defined as _____ business day(s) before the date of record.

Accepted Answer

The ex-dividend date is defined as 2 business days before the date of record. This is because stock trades typically settle in 2 business days (T+2 settlement), ensuring the seller, not the buyer, receives the dividend if the stock is sold around the record date.

Question 18

Green Roof Motels has more cash on hand than its operations require. Thus, the firm has decided to pay out some of its earnings in the form of cash to its shareholders. What are these payments to shareholders called?

Accepted Answer

Payments to shareholders in the form of cash are known as dividends.

Question 19

HJ Corporation has excess cash and has opted to buy some of its shares of outstanding common stock. What is this process of buying called?

Accepted Answer

Buying back its own shares of outstanding common stock is called a stock repurchase.

Question 20

A $0.60 quarterly cash payment paid by T.L. Jones & Co. to its shareholders in the normal course of business is called a:

Accepted Answer

The $0.60 quarterly cash payment is a regular cash dividend, which is a dividend paid by a company on a recurring basis, usually quarterly or annually.

Quiz 17: Dividends and Dividend Policy