Question 1

By purchasing shares through a firm's dividend reinvestment plan (or DRIP), shareholders typically can acquire shares at a value that is above the prevailing market price.

Accepted Answer

By participating in a DRIP, shareholders typically acquire shares at a discounted price that is below the prevailing market price.

Question 2

Dividends provide information about the firm's current and future performance.

Accepted Answer

Dividends are one of the ways that a company provides information about its current and future performance to its shareholders. Dividend payments can signal that a company has strong financial performance and is confident about its future prospects. In addition, companies that have a history of consistently paying dividends may be viewed as more stable and reliable by investors.

Question 3

Dividends are the only means by which firms can distribute cash to shareholders.

Accepted Answer

Firms can also distribute cash to shareholders through share buybacks or through issuing special dividends.

Question 4

The Jobs Growth Tax Relief Reconciliation Act of 2003 significantly changed the tax treatment of corporate dividends for most taxpayers by dropping the tax rate to the rate applicable on capital gains, which is a maximum rate of 15%.

Accepted Answer

The Jobs Growth Tax Relief Reconciliation Act of 2003 did indeed change the tax treatment of corporate dividends by dropping the tax rate to the rate applicable on capital gains, which is a maximum rate of 15%.

Question 5

The Jobs Growth Tax Relief Reconciliation Act of 2003 significantly changed the tax treatment of corporate dividends for most taxpayers by dropping the tax rate to the rate applicable on capital gains, which is a maximum rate of 25%.

Accepted Answer

The answer of The Jobs Growth Tax Relief Reconciliation Act...

Question 6

Date of record (dividends) is the actual date on which the company will mail the dividend payment to the holders of record.

Accepted Answer

The date of record (dividends) is the actual date on which the company will determine which shareholders are eligible to receive the dividend payment. The payment date is the date on which the company will mail the dividend payment to the shareholders of record.

Question 7

The dividend decisions can significantly affect the firm's share price and external financing requirements.

Accepted Answer

Dividend decisions can impact the perception of the company's financial health and future earnings prospects, thereby affecting the demand for its shares in the market. Additionally, a company that pays higher dividends may require lesser external financing as it is distributing its profits to shareholders, whereas a company that retains more earnings may need to raise funds externally for future growth and investment opportunities.

Question 8

The payment date is five days after the date of record, on which the company will mail the dividend to the holders of record.

Accepted Answer

The answer of The payment date is five days after...

Question 9

At a firm's quarterly dividend meeting held April 9, the directors declared a $0.50 per share cash dividend for the holders of record on Monday, May 1. The firm's stock will sell ex-dividends on

Accepted Answer

The ex-dividend date is typically set two business days before the record date. In this case, the record date is May 1, so the ex-dividend date would be April 27 (two business days before May 1). Therefore, choice D is the correct answer.

Question 10

The ex-dividend period begins four business days prior to the payment date during which a stock will be sold without paying the current dividend.

Accepted Answer

The answer of The ex-dividend period begins four business days...

Question 11

The payment of cash dividends to corporate stockholders is decided by the firm's chief financial officer.

Accepted Answer

The decision to pay cash dividends to corporate stockholders is typically made by the company's board of directors, not the chief financial officer. The CFO may advise the board on financial matters related to the decision, but is not solely responsible for it.

Question 12

Because retained earnings are a form of internal financing, the dividend decision can significantly affect the firm's external financing requirements.

Accepted Answer

This is true because if a firm decides to pay out a large amount of dividends to shareholders, it will have less retained earnings to use for internal financing. This could result in the need for the firm to seek external financing, through sources such as debt or equity issuance, to fund future growth or investment opportunities. Alternatively, if a firm chooses to retain earnings and not pay out dividends, it can use those funds for internal investment and growth without needing external financing.

Question 13

Holders of record are stockholders whose names are recorded on the date of record.

Accepted Answer

Holders of record are stockholders whose names are recorded on the date of record.

Question 14

Purchasers of a stock selling ex-dividend receive the current dividend.

Accepted Answer

Purchasers of a stock do not receive the current dividend if they purchase it on or after the ex-dividend date. The dividend goes to the previous owner of the stock.

Question 15

Ignoring general market fluctuations, the stock's price would be expected to drop by the amount of the declared dividend on the ex-dividend date.

Accepted Answer

On the ex-dividend date, the stock price is adjusted to reflect the declared dividend, which reduces the value of the stock by the amount of the dividend. Therefore, ignoring general market fluctuations, the stock's price would be expected to drop by the amount of the declared dividend on the ex-dividend date.

Question 16

Dividends provide information about the firm's current performance but no information about the firm's future performance.

Accepted Answer

The answer of Dividends provide information about the firm's current...

Question 17

The dividend payment date is set by the firm's chief executive officer and represents the actual date on which the firm mails the dividend payment to the holders of record.

Accepted Answer

The dividend payment date is not set by the CEO but by the board of directors. It represents the date on which the firm actually pays the dividend to the shareholders.

Question 18

The dividend payment date is set by the firm's board of directors and represents the actual date on which the firm mails the dividend payment to the holders of record.

Accepted Answer

The statement is true. The board of directors sets the dividend payment date, which is the date when the actual payment is mailed to the shareholders whose names are on record.

Question 19

By purchasing shares through a firm's dividend reinvestment plan (or DRIP), shareholders typically can acquire shares at a value that is below the prevailing market price.

Accepted Answer

By reinvesting dividends, shareholders can acquire additional shares in the company without paying brokerage fees, and often at a discount to the market price. This is because companies typically offer shares at a discounted price or with no commission fees to encourage shareholders to reinvest their dividends.

Question 20

Dividend reinvestment plans (DRIPs) enable stockholders to use dividends received on the firm's stock to acquire additional shares or fractional shares at little or no transaction (brokerage) cost.

Accepted Answer

Dividend reinvestment plans (DRIPs) do allow stockholders to use dividends received to acquire additional shares or fractional shares at little or no transaction cost.

Quiz 13: Payout Policy

By purchasing shares through a firm's dividend reinvestment plan (or DRIP), shareholders typically can acquire shares at a value that is above the prevailing market price.

Dividends provide information about the firm's current and future performance.

Dividends are the only means by which firms can distribute cash to shareholders.

The Jobs Growth Tax Relief Reconciliation Act of 2003 significantly changed the tax treatment of corporate dividends for most taxpayers by dropping the tax rate to the rate applicable on capital gains, which is a maximum rate of 15%.

The Jobs Growth Tax Relief Reconciliation Act of 2003 significantly changed the tax treatment of corporate dividends for most taxpayers by dropping the tax rate to the rate applicable on capital gains, which is a maximum rate of 25%.

Date of record (dividends) is the actual date on which the company will mail the dividend payment to the holders of record.

The dividend decisions can significantly affect the firm's share price and external financing requirements.

The payment date is five days after the date of record, on which the company will mail the dividend to the holders of record.

At a firm's quarterly dividend meeting held April 9, the directors declared a $0.50 per share cash dividend for the holders of record on Monday, May 1. The firm's stock will sell ex-dividends on

The ex-dividend period begins four business days prior to the payment date during which a stock will be sold without paying the current dividend.

The payment of cash dividends to corporate stockholders is decided by the firm's chief financial officer.

Because retained earnings are a form of internal financing, the dividend decision can significantly affect the firm's external financing requirements.

Holders of record are stockholders whose names are recorded on the date of record.

Purchasers of a stock selling ex-dividend receive the current dividend.

Ignoring general market fluctuations, the stock's price would be expected to drop by the amount of the declared dividend on the ex-dividend date.

Dividends provide information about the firm's current performance but no information about the firm's future performance.

The dividend payment date is set by the firm's chief executive officer and represents the actual date on which the firm mails the dividend payment to the holders of record.

The dividend payment date is set by the firm's board of directors and represents the actual date on which the firm mails the dividend payment to the holders of record.

By purchasing shares through a firm's dividend reinvestment plan (or DRIP), shareholders typically can acquire shares at a value that is below the prevailing market price.

Dividend reinvestment plans (DRIPs) enable stockholders to use dividends received on the firm's stock to acquire additional shares or fractional shares at little or no transaction (brokerage) cost.