Question 1

Which of the following statements is CORRECT?

Accepted Answer

A new-stock dividend reinvestment plan allows a company to raise new equity capital by issuing new shares, while an open market purchase plan involves buying existing shares, which is more suitable if no new equity is needed.

Question 2

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 being paid out as dividends and stockholders are reinvesting all of those dividends, the company may not be retaining enough earnings to fund future growth and may need to reduce its dividend payout ratio in order to retain more earnings for investment purposes.

Question 3

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 4

Which of the following statements is CORRECT?

Accepted Answer

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

Question 5

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

Under the residual dividend model, the firm pays out dividends based on the amount of residual earnings left over after funding all positive Net Present Value (NPV) projects. Therefore, an increase in net income would lead to an increase in residual earnings and potentially higher dividends. The other options do not directly impact the amount of residual earnings available for dividend payments.

Question 6

If on January 3 a company declares a dividend of $1.50 per share,payable on January 31 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 full amount of the dividend on the payable date. It also depends on various other factors such as market conditions, demand for the stock, and investor sentiment.

Question 7

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

This statement is true because there are various reasons why the post-split price could be higher than the expected price of $25. The signaling effect from management and the preference for lower-priced shares are two such reasons.

Question 8

Which of the following statements about dividend policies is CORRECT?

Accepted Answer

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

Question 9

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 10

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

If the firm adheres strictly to the residual dividend policy and uses all earnings for its optimal capital budget, it will not have any residual earnings available for dividends. Therefore, the firm should not pay any dividends to common stockholders as all earnings are allocated towards the capital budget.

Question 11

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 now has more high-return investment opportunities, then the firm is likely to invest more of its profits back into the business instead of paying out dividends to shareholders. This will lead to a decrease in the firm's dividend payout ratio.

Question 12

Which of the following statements is CORRECT?

Accepted Answer

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

Question 13

Which of the following statements is CORRECT?

Accepted Answer

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

Question 14

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 unlikely to have a significant impact on a firm's dividend policy decision. The other options listed are more likely to affect the decision-making process.

Question 15

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 16

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 17

If on January 3 a company declares a dividend of $1.50 per share,payable on January 31 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

This is because on the ex-dividend date, the stock starts trading without the dividend attached, so investors who buy the stock on or after the ex-dividend date will not receive the upcoming dividend payment. As a result, the stock price typically drops by the amount of the dividend on the ex-dividend date to reflect this change in value.

Question 18

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 19

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 20

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

A 2-for-1 stock split means that for every one share you currently own, you will receive two shares. Therefore, after the split, you will own 200 shares (100 x 2). However, because the stock price will adjust to reflect the split, the new price per share will be approximately $60 ($120 divided by 2). Therefore, your new position will be 200 shares of stock at approximately $60 a share.

Quiz 14: Distribution to Shareholders: Dividends and Share Repurchases

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

Which of the following statements is CORRECT?

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?

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

Which of the following statements about dividend policies is CORRECT?

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

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

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

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

If on January 3 a company declares a dividend of $1.50 per share,payable on January 31 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.

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

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?