Question 1

Among owner considerations in the establishment of dividend policy, any of the following may enter into the decision EXCEPT

Accepted Answer

The answer of Among owner considerations in the establishment of...

Question 2

Firms are usually prohibited by state law from distributing

Accepted Answer

The answer of Firms are usually prohibited by state law...

Question 3

Because dividends are taxed at the same rate as capital gains under the 2003 Tax Act, a firm's strategy of paying low or no dividends primarily offers tax advantages to wealthy stockholders through tax deferral rather than as a result of a lower tax rate on current income.

Accepted Answer

Under the 2003 Tax Act, dividends are taxed at the same rate as capital gains, so a firm's decision to pay low or no dividends primarily benefits wealthy stockholders through tax deferral rather than a lower tax rate on current income.

Question 4

In general, the market rewards firms that adopt a fixed or increasing level of dividends rather than a fixed dividend payout policy through higher share prices.

Accepted Answer

This is because a fixed or increasing level of dividends signals financial stability and consistent profitability, which are attractive to investors and can lead to higher demand for the company's shares and, therefore, higher market prices. On the other hand, a variable or fluctuating dividend payout policy may indicate uncertainty or lack of financial discipline, which can subdue investor confidence and negatively impact share prices.

Question 5

Regular dividend policy is a dividend policy based on the payment of a certain percentage of earnings to owners in each dividend period.

Accepted Answer

Regular dividend policy refers to the payment of a fixed amount of dividend at regular intervals, regardless of earnings. Earnings may fluctuate, but the dividend payout remains constant under this policy.

Question 6

The level of dividends a firm expects to pay is generally unrelated to how rapidly it expects to grow as well as the level of asset investments required.

Accepted Answer

The level of dividends a firm expects to pay is often related to how rapidly it expects to grow and the level of asset investments required. If a firm has strong growth opportunities and requires significant investments, it may opt to pay low or no dividends in order to reinvest earnings into the business. Conversely, a mature or low-growth firm may pay higher dividends to distribute excess cash to shareholders.

Question 7

A firm that has a large percentage of ________ investors may pay out a lower percentage of its earnings as dividends.

Accepted Answer

The answer of A firm that has a large percentage...

Question 8

A firm has the following stockholders' equity balances:  In states where the firm's legal capital is defined as the par value of its common stock, the maximum cash dividend the firm could pay is

Accepted Answer

The answer of A firm has the following stockholders' equity...

Question 9

In general, with regard to dividend payments, the contractual constraints imposed by loan agreements can include all of the following EXCEPT

Accepted Answer

Loan agreements typically do not require the payment of common stock dividends, therefore, option D is the correct answer. The other options are all common contractual constraints imposed by loan agreements on dividend payments.

Question 10

In most states, legal capital is measured not only by the par value and paid in capital of the stock, but also by any accumulated retained earnings.

Accepted Answer

The answer of In most states, legal capital is measured...

Question 11

The factors involved in setting a dividend policy include all of the following EXCEPT

Accepted Answer

The answer of The factors involved in setting a dividend...

Question 12

A constant-payout-ratio dividend policy is a dividend policy based on the payment to existing owners of a dividend in the form of stock as a certain percentage of the firm's total number of stocks outstanding in each dividend period.

Accepted Answer

A constant-payout-ratio dividend policy is a dividend policy based on the payment of a dividend as a certain percentage of the firm's earnings per share, not as a certain percentage of the firm's total number of stocks outstanding.

Question 13

In general, the market rewards firms that adopt a constant dividend payout policy rather than a fixed or increasing level of dividends through higher share prices.

Accepted Answer

The market doesn't necessarily reward firms that adopt a constant dividend payout policy, as investors may prefer a higher level of dividends or a dividend growth strategy, which may lead to higher share prices. Ultimately, the best dividend policy for a firm depends on a variety of factors, including its financial position, growth opportunities, and shareholder preferences.

Question 14

The factors involved in setting a dividend policy include all of the following EXCEPT

Accepted Answer

The answer of The factors involved in setting a dividend...

Question 15

The regular dividend policy provides the owners with generally positive information, indicating that the firm is okay and thereby minimizing their uncertainty.

Accepted Answer

The regular dividend payments signal stability and reliability of the company's financial health, which reduces the uncertainty of the shareholders.

Question 16

The dividend policy must be formulated considering two basic objectives, namely

Accepted Answer

The answer of The dividend policy must be formulated considering...

Question 17

An excess earnings accumulation tax is levied when

Accepted Answer

An excess earnings accumulation tax is levied when firms do not pay dividends in order to delay the owner's tax liability. This tax is designed to discourage corporations from hoarding excess funds and retaining them for the benefit of the shareholders while deferring tax payments.

Question 18

If a firm has overdue liabilities or is legally insolvent or bankrupt, most states prohibit its payment of cash dividends.

Accepted Answer

This is because the firm has a legal obligation to pay its debts before distributing profits to shareholders. Paying dividends in such circumstances would be considered a violation of fiduciary duty towards creditors.

Question 19

The capital impairment restrictions are established to

Accepted Answer

Capital impairment restrictions are established to ensure that there is a sufficient base to protect creditors' claims. These restrictions prevent companies from distributing dividends or engaging in activities that could lead to a reduction in the value of their assets, which could put creditors at risk. By maintaining a minimum level of capital, companies can continue to operate and fulfill their obligations to creditors even if they experience financial difficulties.

Question 20

The level of dividends a firm expects to pay is often directly related to how rapidly it expects to grow as well as the level of asset investments required.

Accepted Answer

This statement is true. Firms that expect rapid growth and require high levels of asset investments may choose to pay lower dividends in order to retain earnings and reinvest in the business to support growth. On the other hand, firms with lower growth expectations and less need for asset investments may choose to pay higher dividends to attract investors seeking income.

Quiz 13: Payout Policy

Among owner considerations in the establishment of dividend policy, any of the following may enter into the decision EXCEPT

Firms are usually prohibited by state law from distributing

Because dividends are taxed at the same rate as capital gains under the 2003 Tax Act, a firm's strategy of paying low or no dividends primarily offers tax advantages to wealthy stockholders through tax deferral rather than as a result of a lower tax rate on current income.

In general, the market rewards firms that adopt a fixed or increasing level of dividends rather than a fixed dividend payout policy through higher share prices.

Regular dividend policy is a dividend policy based on the payment of a certain percentage of earnings to owners in each dividend period.

The level of dividends a firm expects to pay is generally unrelated to how rapidly it expects to grow as well as the level of asset investments required.

A firm that has a large percentage of ________ investors may pay out a lower percentage of its earnings as dividends.

A firm has the following stockholders' equity balances: In states where the firm's legal capital is defined as the par value of its common stock, the maximum cash dividend the firm could pay is

In general, with regard to dividend payments, the contractual constraints imposed by loan agreements can include all of the following EXCEPT

In most states, legal capital is measured not only by the par value and paid in capital of the stock, but also by any accumulated retained earnings.

The factors involved in setting a dividend policy include all of the following EXCEPT

A constant-payout-ratio dividend policy is a dividend policy based on the payment to existing owners of a dividend in the form of stock as a certain percentage of the firm's total number of stocks outstanding in each dividend period.

In general, the market rewards firms that adopt a constant dividend payout policy rather than a fixed or increasing level of dividends through higher share prices.

The factors involved in setting a dividend policy include all of the following EXCEPT

The regular dividend policy provides the owners with generally positive information, indicating that the firm is okay and thereby minimizing their uncertainty.

The dividend policy must be formulated considering two basic objectives, namely

An excess earnings accumulation tax is levied when

If a firm has overdue liabilities or is legally insolvent or bankrupt, most states prohibit its payment of cash dividends.

The capital impairment restrictions are established to

The level of dividends a firm expects to pay is often directly related to how rapidly it expects to grow as well as the level of asset investments required.