Deck 10: The Features of Stock

Question 1

A constant payout ratio implies dividends vary with earnings.​

Answer 1

True

Question 2

When a stock goes ex‑dividend, its price tends to decline by the amount of the cash dividend. l> ​

Answer 2

True

Question 3

A reverse split increases the number of shares the firm has outstanding.​

Answer 3

False

Question 4

A cash dividend reduces a firm's equity.​

Question 5

A stock dividend has no impact on a firm's liabilities or the price of its stock.​

Question 6

Corporations are obligated to pay cash dividends if they generate earnings.​

Question 7

A stock dividend decreases retained earnings.​

Question 8

Dividend reinvestment plans permit the stockholder to reinvest dividends as they are received.​

Question 9

Most publicly held American firms that pay dividends tend to pay a regular quarterly cash dividend.​

Question 10

Once a firm has earnings, management has essentially two choices: distribute or retain them.​

Question 11

Cumulative voting concentrates voting power in the hands of a majority of corporate voters.​

Question 12

A cash dividend reduces the firm's assets.​

Question 13

If a firm does not pay cash dividends, it may reinvest the earnings and grow.​

Question 14

Federal income taxes favor the retention of earnings over the distribution of earnings.​

Question 15

Pre-emptive rights mean that current stockholders have the right to maintain their proportionate ownership before new shares may be sold to the general public.​

Question 16

If a stock is selling for $90 and is split 3 for 1, the new price of the stock should be $30.​

Question 17

Stockholders who seek to defer taxes prefer capital gains to dividends.​

Question 18

Dividends reinvested are not subject to federal income tax.​

Question 19

A 5% stock dividend reduces a firm's total equity.​

Question 20

The owners of a corporation elect the board of directors.​

Question 21

Dividend reinvestment plans are a convenient means to encourage individuals to save.​

Question 22

If a stock's price is $90 and the stock is split three for one, the price becomes

A) ​$90
B) ​$60
C) ​$45
D) ​$30

Question 23

Stock dividends increase the wealth of stockholders who receive additional shares. l> ​

Question 24

A company may pay
1) a regular quarterly cash dividend
2) stock dividends
3) no dividends​

A)​1 and 2
B)​1 and 3
C)​2 and 3
D)​1, 2, and 3

Question 25

Which of the following is equity?
1) investments
2) additional paid‑in capital
3) retained earnings

A)​1 and 2
B)​1 and 3
C)​2 and 3
D)​1, 2, and 3

Question 26

Dividend reinvestment plans permit stockholders to defer income taxes on dividends.​

Question 27

A reserve split should raise the per share price of a stock but not it total value.​

Question 28

​A stock split

A) ​increases equity
B) ​generates capital gains
C) ​increases retained earnings
D) ​does not affect liabilities

Question 29

Which of the following are true concerning dividend reinvestment plans?
​1) taxes are deferred
2) they offer stockholders a convenient means to save
3) the firm may pay the brokerage and other fees associated with the plans

A)​1 and 2
B)​1 and 3
C)​2 and 3
D)​1, 2, and 3

Question 30

​Stock repurchases

A) increase per share earnings
B) ​decrease per share earnings
C) ​increase liabilities
D) ​decrease liabilities

Question 31

The retention of earnings instead of paying dividends

A) may result in greater growth and higher stock prices
B) ​is advantageous for all stockholders
C) ​is favored by stockholders in lower income tax brackets
D) ​leads to lower future dividends

Question 32

Stock repurchases reduce​
1) total equity
2) total assets
3) corporate taxes
4) total liabilities

A)​1 and 2
B)​1 and 3
C)​2 and 3
D)​3 and 4

Question 33

A stock dividend causes the firm's​

A) ​assets to increase
B) ​equity to increase
C) ​liabilities to remain unchanged
D) ​assets to decrease

Question 34

A stock dividend

A) ​reduces the firm's cash
B) ​increases the firm's total equity
C) ​decreases the firm's stock price
D) ​increases the firm's assets

Question 35

Dividends may be paid in
1) cash
2) stock
3) retained earnings

A)​1 and 2
B)​1 and 3
C)​2 and 3
D)​1, 2, and 3

Question 36

Dividend reinvestment plans are​

A) ​a convenient means to accumulate shares
B) ​a means to defer federal income taxes on the dividends
C) available only if the corporation distributes stock dividends
D) ​more expensive than buying the stock through brokers

Question 37

Management may prefer not paying dividends to​

A) ​reduce corporate income taxes
B) ​finance growth and increase the value of their shares
C) ​use the money to reduce investments in assets
D) ​increase the firm's liabilities

Question 38

Dividends come at the expense of

A) ​interest
B) ​retained earnings
C) ​liabilities
D) ​stock

Question 39

​Dividends are paid on the

A) ​declaration date
B) ​ex dividend date
C) ​date of record
D) ​distribution date

Question 40

Persons owning stock on the day a dividend is declared receive the dividend.​

Question 41

Currently the price of a stock is $58 a share. The firm's balance sheet is as follows:
​ Assets Liabilities and Equity
Cash $\$ 10,000,000$ Accounts payable $\$ 20,000,000$
Accounts 250,000,000 Long-term debt $400,000,000$
receivable Common stock ( $\$ 10$ par; $10,000,000$
Inventory $120,000,000 \quad 1,000,000$ shares outstanding)
Plant and 325,000,000 Paid-in capital $90,000,000$
equipment _ Retained earnings $\underline { 185,000,000 }$
$\$ 705,000,000$
$\$ 705,000,000$ ​
​
Construct a new balance sheet showing the impact of a two-for-one stock split. What will be the new price of the stock?

Question 42

A company whose stock is selling for $45 has the following balance sheet: $\begin{array}{ll}\text { Assets }\quad\$32,000\quad\quad\quad\text { Liabilities }\quad\$10,000\\\text { Common stock }&6,000\\\text { (\$6 par; 1,000 }\text { shares issued) }\\\text { Additional paid-in capital }&2,000\\\text { Retained eamings }&14,000\end{array}$
​
a. Construct a new balance sheet showing a 3 for 1 stock split. What is the new price for the stock?
​
b. What would be the balance sheet if the firm paid a 10 percent stock dividend (instead of the stock split)?
​

Question 43

​Construct a new balance sheet showing the impact of a 5 percent stock dividend. What will be the new price of the
stock?