Question 1

The date on which the board authorizes the dividend is the

Accepted Answer

The declaration date is the date on which the board of directors approves the payment of a dividend and announces it to the public. This is the first step in the dividend payment process and precedes the other dates mentioned in the options. The distribution date is the date on which the dividend payment is actually made, the record date is the date on which shareholders are identified as eligible to receive the dividend, and the ex-dividend date is the date on which the stock trades without the right to receive the upcoming dividend.

Question 2

Which of the following statements is false?

Accepted Answer

Statement C is false because in perfect capital markets, an open market share repurchase can affect the stock price differently than a dividend payment. While the price may drop in the case of a dividend by the amount of the dividend when the stock trades ex-dividend, a share repurchase can signal different information to the market and may not lead to a direct, equivalent price adjustment.

Question 3

Use the information for the question(s) below.
Omicron Technologies has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Omicron's unlevered cost of capital is 10% and there are 10 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock.
-Including its cash,Omicron's total market value is closest to:

Accepted Answer

D) Enterprise Value - PV(Future FCF) = 11ea7e5a_6ecf_0a55_9a0a_33e3f12c057d_TB1623_11 = $400 million
Market Value = Enterprise Value + cash = $400 + $50 = $450 million

Question 4

The Canadian federal laws and respective provincial relevant acts include provisions prohibiting firms from paying dividends under certain circumstances.The intent of such provisions is to protect the firm's ________ against excessive dividend payments.

Accepted Answer

The purpose of provisions prohibiting firms from paying dividends under certain circumstances is to protect the firm's creditors. If a company pays out excessive dividends, it can potentially harm the company's ability to pay its debts, which could put creditors at risk. Therefore, these provisions help to ensure that companies maintain a reasonable financial position and do not endanger their ability to repay debts. Shareholders, stakeholders, and management may also benefit from reasonable dividend policies, but the primary aim is to safeguard creditors.

Question 5

Both TSX and SEC guidelines recommend that the firm not purchase more than ________ of the average daily trading volume in its shares on a single day,nor make purchases at the market open or within 30 minutes of the close of trade.

Accepted Answer

The correct answer is 25% of the average daily trading volume in its shares on a single day, as recommended by both TSX and SEC guidelines to avoid market manipulation.

Question 6

The firm will pay the dividend to all shareholders who are registered owners on a specific date,set by the board,called the

Accepted Answer

The record date is the specific date set by the board on which the firm pays the dividend to all shareholders who are registered owners. The other options are:
A) declaration date: the date on which the board of directors announces the upcoming dividend.
C) distribution date: the date on which the dividend is actually paid out to shareholders.
D) ex-dividend date: the date on or after which a stock no longer entitles a shareholder to the most recently announced dividend.

Question 7

Which of the following statements is false?

Accepted Answer

Most companies that pay dividends pay them quarterly rather than semi-annually.

Question 8

A(n)________ is the most common way that firms repurchase shares.

Accepted Answer

Open market share repurchase is the most common way that firms repurchase shares. In this method, the firm buys its own shares on the open market through a broker, which allows the firm to buy back shares gradually and at the prevailing market price. This method is often preferred because it offers flexibility in timing and pricing of the share repurchases.

Question 9

Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.Omicron's ex-dividend price is closest to:

Accepted Answer

D) Enterprise Value - PV(Future FCF) = 11ea7e5a_6ecf_7f8b_9a0a_fd2f377afe1b_TB1623_11 = $400 million
Market Value = Enterprise Value + cash = $400 + $50 = $450 million
However, once the $50 million in cash is used to pay the dividend, the new market value becomes $450 - $50 = $400 Million
Share price = 11ea7e5a_6ecf_7f8c_9a0a_d9cbc2cd94e0_TB1623_11 = 11ea7e5a_6ecf_a69d_9a0a_dbc814df2449_TB1623_11 = $40.00

Question 10

Use the information for the question(s) below.
Omicron Technologies has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Omicron's unlevered cost of capital is 10% and there are 10 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock.
-Omicron's enterprise value is closest to:

Accepted Answer

D) Enterprise Value = PV(Future FCF) = 11ea7e5a_6ecf_0a54_9a0a_831b3e69c474_TB1623_11 = $400 million

Question 11

Anyone who purchases the stock on or after the ________ date will not receive the dividend.

Accepted Answer

The ex-dividend date is the date on or after which anyone who purchases the stock will not receive the dividend. The distribution date is the date on which the dividend is actually paid out to shareholders. The record date is the date on which the company checks its records to determine which shareholders are eligible to receive the dividend. The declaration date is the date on which the company's board of directors announces the dividend.

Question 12

Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.Omicron's cum-dividend price is closest to:

Accepted Answer

D) Enterprise Value - PV(Future FCF) = 11ea7e5a_6ecf_5878_9a0a_add747eef245_TB1623_11 = $400 million
Market Value = Enterprise Value + cash = $400 + $50 = $450 million
Share price = 11ea7e5a_6ecf_5879_9a0a_3ffb59b3014f_TB1623_11 = 11ea7e5a_6ecf_7f8a_9a0a_13c31d5c25a4_TB1623_11 = $45.00

Question 13

Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.The amount of the special dividend is closest to:

Accepted Answer

A) Dividend = 11ea7e5a_6ecf_3166_9a0a_6d24cce96cf4_TB1623_11 = $5 per share

Question 14

A(n)________ may occur if a major shareholder desires to sell a large number of shares but the market for the shares is not sufficiently liquid to sustain such a large sale without severely affecting the price.

Accepted Answer

A targeted repurchase occurs when a company buys back shares directly from a specific shareholder, often to fend off a hostile takeover or when a major shareholder wants to sell a large block of shares without negatively impacting the market price through a public sale.

Question 15

A firm can repurchase shares through a(n)________,in which it offers to buy shares at a prespecified price during a short time period - generally within 20 days.

Accepted Answer

A tender offer is a method through which the firm offers to buy shares from its shareholders at a specified price, typically above the current market price, for a short period of time, generally within 20 days. It is an effective way for the firm to repurchase shares and return value to its shareholders. Open market share repurchase involves buying shares from the open market, while targeted repurchase refers to buying shares from specific shareholders. Dutch auction share repurchase is a more complex method, where the firm announces a range of prices and shareholders choose the price at which they want to sell their shares. However, this method is not very commonly used. Therefore, the best choice for a firm to repurchase shares is through a tender offer.

Question 16

Another to method to repurchase shares is the ________,in which the firm lists different prices at which it is prepared to buy shares,and shareholders in turn indicate how many shares they are willing to sell at each price.

Accepted Answer

The method described in the question is a Dutch auction share repurchase. This involves the company listing different prices at which it is prepared to buy shares, and shareholders indicating how many shares they are willing to sell at each price. This approach allows the company to determine the lowest purchase price at which enough shareholders are willing to sell their shares, thereby minimizing the cost of the repurchase.

Question 17

Assume that Omicron uses the entire $50 million to repurchase shares.The number of shares that Omicron will repurchase is closest to:

Accepted Answer

C) Enterprise Value - PV(Future FCF) = 11ea7e5a_6ecf_a69e_9a0a_69256defd96d_TB1623_11 = $400 million
Market value = Enterprise Value + cash = $400 + $50 = $450 million
Share price = 11ea7e5a_6ecf_cdaf_9a0a_770c5190f80c_TB1623_11 = 11ea7e5a_6ecf_cdb0_9a0a_4b62f499923e_TB1623_11 = $45.00
Number of shares repurchased = 11ea7e5a_6ecf_cdb1_9a0a_27d99a641cd8_TB1623_11 = 1,111,111 shares

Question 18

Because buying or selling shares is a ________ transaction,such transactions have ________ on the initial share price.

Accepted Answer

Buying or selling shares is considered a zero-NPV (Net Present Value) transaction because it does not create or destroy value by itself; therefore, such transactions have no effect on the initial share price.

Question 19

The firm mails dividend checks to the registered shareholders on the

Accepted Answer

The distribution date is when the firm mails dividend checks to the registered shareholders.

Question 20

Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.The amount of the regular yearly dividends in the future is closest to:

Accepted Answer

C) Dividend = 11ea7e5a_6ecf_5877_9a0a_cb229902c433_TB1623_11 = $4 per share

Quiz 20: Payout Policy

The date on which the board authorizes the dividend is the

Which of the following statements is false?

The Canadian federal laws and respective provincial relevant acts include provisions prohibiting firms from paying dividends under certain circumstances.The intent of such provisions is to protect the firm's ________ against excessive dividend payments.

Both TSX and SEC guidelines recommend that the firm not purchase more than ________ of the average daily trading volume in its shares on a single day,nor make purchases at the market open or within 30 minutes of the close of trade.

The firm will pay the dividend to all shareholders who are registered owners on a specific date,set by the board,called the

Which of the following statements is false?

A(n) ________ is the most common way that firms repurchase shares.

Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.Omicron's ex-dividend price is closest to:

Anyone who purchases the stock on or after the ________ date will not receive the dividend.

Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.Omicron's cum-dividend price is closest to:

Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.The amount of the special dividend is closest to:

A(n) ________ may occur if a major shareholder desires to sell a large number of shares but the market for the shares is not sufficiently liquid to sustain such a large sale without severely affecting the price.

A firm can repurchase shares through a(n) ________,in which it offers to buy shares at a prespecified price during a short time period - generally within 20 days.

Another to method to repurchase shares is the ________,in which the firm lists different prices at which it is prepared to buy shares,and shareholders in turn indicate how many shares they are willing to sell at each price.

Assume that Omicron uses the entire $50 million to repurchase shares.The number of shares that Omicron will repurchase is closest to:

Because buying or selling shares is a transaction,such transactions have on the initial share price.

The firm mails dividend checks to the registered shareholders on the

Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.The amount of the regular yearly dividends in the future is closest to: