Deck 11: Dividends: Past, present, and Future

Question 1

The liquidation of a corporation is not subject to federal capital gains taxation.

Answer 1

False

Question 2

The price of a stock generally adjusts downward for the distribution of dividends.

Answer 2

True

Question 3

The payout ratio is dividends divided by earnings.

Answer 3

True

Question 4

Managements are often reluctant to reduce dividends because reductions may be viewed as indicating financial weakness.

Question 5

A two-for-one stock split doubles the number of shares and their price.

Question 6

Dividend increases usually occur prior to an increase in earnings.

Question 7

Earnings retention facilitates the firm's growth in assets.

Question 8

Stock dividends reduce the firm's total equity.

Question 9

A higher payout ratio implies a lower growth rate.

Question 10

The ex-dividend date follows the date of record.

Question 11

A major advantage associated with dividend reinvestment plans is forced saving.

Question 12

Cash dividends are subject to federal income taxes.

Question 13

Academic studies often suggest that stock splits do not increase the value of the firm.

Question 14

A one-for-two reverse split increases the price of the stock.

Question 15

Dividend reinvestment plans are a means to postpone federal income tax on dividends.

Question 16

Stock dividends increase the firm's cash.

Question 17

Firms in cyclical industries may supplement regular dividends with extra dividends.

Question 18

If an investor buys stock on the ex-dividend date,that individual will not receive the dividend.

Question 19

Repurchases of shares may be viewed as an alternative to paying cash dividends.

Question 20

Stock splits and stock dividends increase the earning capacity of the firm.

Question 21

Cash dividends
1)are paid from earnings
2)increase the capacity of the firm to grow
3)reduce the firm's assets

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices

Question 22

Which of the following occurs when a 10 percent stock dividend is paid?

A) the firm's retained earnings decrease
B) the firm's equity is increased
C) the stock's par value is decreased
D) the stock's price is increased

Question 23

If a firm has substantial excess cash,it may
1)repurchase some of its shares
2)increase its cash dividends
3)increase its liabilities

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) only 2

Question 24

A firm's stock sells for $100 a share.What will be the price after a
a.two-for-one split
b.four-for-one split
c.one-for-two reverse split?

Question 25

Dividend policy depends on
1)the firm's earnings
2)investment opportunities available to the firm
3)corporate income taxes

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices

Question 26

If a firm's dividend has grown from $1 to $2 in ten years,the annual rate of growth is 10 percent.

Question 27

Dividend reinvestment plans offer which advantages?
1)deferment of federal income taxes
2)a convenient means to accumulate shares
3)dollar-cost averaging

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) only 2

Question 28

Stock dividends increase

A) the number of shares outstanding
B) the firm's assets
C) the firm's equity
D) the stock's price

Question 29

The procedure for the distribution of dividends does not include

A) the ex-dividend date
B) the date of record
C) the settlement date
D) the date of announcement

Question 30

Which of the following occurs when a stock is split two-for-one?

A) the price of the stock doubles
B) the firm's assets increase
C) the firm's liabilities decrease
D) the par value of the stock is reduced

Question 31

Stock dividends cause

A) the price of a share of stock to rise
B) the price of a share of stock to fall
C) the value of the firm to rise
D) the value of the firm to fall

Question 32

If a firm is liquidated,
1)it ceases to exist
2)stockholders receive the firm's assets after liabilities are paid
3)stockholders pay any applicable capital gains taxes

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices

Question 33

Historical growth rates are useful for stock valuation only to the extent they help forecast the future growth in dividends.

Question 34

Dividend growth rates may be estimated using

A) return on assets
B) the ratio of debt to assets
C) regression analysis
D) present value of an annuity interest factors

Question 35

The future value of an annuity may be used to help estimate a firm's historical growth rate.

Question 36

Regression analysis estimates the rate of growth in dividends by considering the starting and ending dividend paid by the firm.

Question 37

A firm's balance sheet has the following entries:
What will be each of these balance sheet entries after a

Question 38

Averaging positive and negative percentage changes biases the rate of return the investor earns.

Question 39

If a firm repurchases its stock,

A) selling stockholders avoid capital gains taxes
B) the firm's holdings of cash are increased
C) earnings per share are increased
D) debt financing decreases