Question 1

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 2

Which of the following statements about dividend policies is CORRECT?

Accepted Answer

The answer of Which of the following statements about dividend...

Question 3

Your firm uses the residual dividend model to set dividend policy.Market interest rates suddenly rise,and stock prices decline.Your firm's earnings,investment opportunities,and capital structure do not change.If the firm follows the residual dividend model,then its dividend payout ratio would increase.

Accepted Answer

The answer of Your firm uses the residual dividend model...

Question 4

Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?

Accepted Answer

If a firm's research and development efforts pay off and it has more high-return investment opportunities, it may choose to reinvest its earnings into these opportunities rather than paying out dividends to shareholders. This would lead to a decrease in the firm's dividend payout ratio. Options A, B, and D are not directly related to the dividend payout ratio. Option E does not provide enough information to determine its effect on the dividend payout ratio.

Question 5

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 6

If a firm pays out all of its earnings as dividends and its stockholders then elect to have all of their dividends reinvested,the company should reconsider its dividend policy and possibly move to a lower dividend payout ratio.

Accepted Answer

If all earnings are paid out as dividends and then reinvested, there are no earnings left to be reinvested in the company's growth. This could hinder the company's ability to grow and may lead to a decrease in stock value. Therefore, the company should reconsider its dividend policy and consider retaining some earnings for reinvestment.

Question 7

If on January 3,2015,a company declares a dividend of $1.50 per share,payable on January 31,2015,then the price of the stock should drop by approximately $1.50 on January 31.

Accepted Answer

The price of the stock may not necessarily drop by the exact amount of the dividend on the payment date. There are several factors that may affect the stock price, such as market conditions, investors' expectations, and company performance. It is possible that the stock price may remain unchanged or even increase after the dividend payment.

Question 8

If a firm adheres strictly to the residual dividend model,the issuance of new common stock would suggest that

Accepted Answer

The answer of If a firm adheres strictly to the...

Question 9

Which of the following does NOT normally influence a firm's dividend policy decision?

Accepted Answer

The fact that much of the firm's equipment is leased rather than bought and owned is not a factor that normally influences a firm's dividend policy decision. The other choices, such as the firm's ability to accelerate or delay investment projects, shareholder preferences, bond indenture constraints, and changes in tax law all have the potential to affect a firm's dividend decision.

Question 10

There are two types of dividend reinvestment plans.Under one type of plan,the firm uses the cash that would have been paid as dividends to buy stock on the open market.Under the other type,the company issues new stock,keeps the cash that would have been paid out,and in effect sells new stock to those investors who choose to reinvest their dividends.

Accepted Answer

The answer of There are two types of dividend reinvestment...

Question 11

If a firm declares a 20:
1 stock split,and the pre-split price was $500,then we might expect the post-split price to be $25.However,it often turns out that the post-split price will be higher than $25.This higher price could be due to signaling effects investors believe that management split the stock because they think the firm is going to do better in the future.The higher price could also be because investors like lower-priced shares.

Accepted Answer

The statement accurately describes the potential reasons for a higher post-split price, which could be due to signaling effects or preference for lower-priced shares among investors.

Question 12

One advantage of dividend reinvestment plans is that they allow shareholders to delay paying taxes on the dividends that they choose to reinvest.

Accepted Answer

The answer of One advantage of dividend reinvestment plans is...

Question 13

If on January 3,2015,a company declares a dividend of $1.50 per share,payable on January 31,2015,to holders of record on January 17,then the price of the stock should drop by approximately $1.50 on January 15,which is the ex-dividend date.

Accepted Answer

When a company declares a dividend, the stock price usually drops by the amount of the dividend on the ex-dividend date, which is two business days before the record date. In this case, the ex-dividend date falls on January 15, so the stock price should drop by approximately $1.50 on that day. Therefore, the statement is true.

Question 14

You own 100 shares of Troll Brothers' stock,which currently sells for $120 a share.The company is about to declare a 2-for-1 stock split.Which of the following best describes your likely position after the split?

Accepted Answer

The answer of You own 100 shares of Troll Brothers'...

Question 15

Your firm adheres strictly to the residual dividend model.All else equal,which of the following factors would be most likely to lead to an increase in the firm's dividend per share?

Accepted Answer

According to the residual dividend model, dividends are paid from residual or leftover earnings after all profitable projects have been undertaken and obligations to debt holders have been met. Therefore, an increase in net income would lead to an increase in residual earnings, which could be used to pay higher dividends. The other options are not directly related to the residual dividend model and would not necessarily lead to an increase in dividend per share.

Question 16

Myron Gordon and John Lintner believe that the required return on equity increases as the dividend payout ratio is lowered.Their argument is based on the assumption that

Accepted Answer

The answer of Myron Gordon and John Lintner believe that...

Question 17

Suppose you plotted a curve which showed a Firm U's WACC on the vertical axis and its debt ratio on the horizontal axis.Then you plotted a similar curve for Firm V.The curve for firm U resembled a shallow "U," while that for Firm V resembled a sharp "V." Both firms have debt ratios that cause their WACCs to be minimized.Other things held constant,it would be easier for Firm V than for Firm U to maintain a steady dividend in the face of varying investment opportunities and earnings from year to year.

Accepted Answer

The answer of Suppose you plotted a curve which showed...

Question 18

Which of the following statements is CORRECT?

Accepted Answer

A new-stock dividend reinvestment plan raises new equity capital, while an open market purchase plan does not, making the latter more suitable if no new equity is needed.

Question 19

If a firm adheres strictly to the residual dividend policy,and if its optimal capital budget requires the use of all earnings for a given year (along with new debt according to the optimal debt/assets ratio),then the firm should pay

Accepted Answer

Since the firm's optimal capital budget requires the use of all earnings for the given year, there is no residual earnings left to pay as dividends to common stockholders. Therefore, the firm should not pay any dividends to common stockholders and reinvest all earnings into the business.

Question 20

Which of the following statements is CORRECT?

Accepted Answer

Large stock repurchases financed by debt increase the firm's financial risk because more debt means higher interest payments and greater risk of default. However, repurchases could increase expected earnings per share if the reduction in shares outstanding outweighs the increase in interest payments.

Quiz 15: Distributions to Shareholders: Dividends and Share Repurchases

Which of the following statements is CORRECT?

Which of the following statements about dividend policies is CORRECT?

Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?

Which of the following statements is CORRECT?

If a firm pays out all of its earnings as dividends and its stockholders then elect to have all of their dividends reinvested,the company should reconsider its dividend policy and possibly move to a lower dividend payout ratio.

If on January 3,2015,a company declares a dividend of $1.50 per share,payable on January 31,2015,then the price of the stock should drop by approximately $1.50 on January 31.

If a firm adheres strictly to the residual dividend model,the issuance of new common stock would suggest that

Which of the following does NOT normally influence a firm's dividend policy decision?

One advantage of dividend reinvestment plans is that they allow shareholders to delay paying taxes on the dividends that they choose to reinvest.

If on January 3,2015,a company declares a dividend of $1.50 per share,payable on January 31,2015,to holders of record on January 17,then the price of the stock should drop by approximately $1.50 on January 15,which is the ex-dividend date.

You own 100 shares of Troll Brothers' stock,which currently sells for $120 a share.The company is about to declare a 2-for-1 stock split.Which of the following best describes your likely position after the split?

Your firm adheres strictly to the residual dividend model.All else equal,which of the following factors would be most likely to lead to an increase in the firm's dividend per share?

Myron Gordon and John Lintner believe that the required return on equity increases as the dividend payout ratio is lowered.Their argument is based on the assumption that

Which of the following statements is CORRECT?

If a firm adheres strictly to the residual dividend policy,and if its optimal capital budget requires the use of all earnings for a given year (along with new debt according to the optimal debt/assets ratio) ,then the firm should pay

Which of the following statements is CORRECT?