Deck 19: Dividends and Other Payouts

Question 1

The date before which a purchaser of stock is entitled to receive a declared dividend,but on or after that date they cannot,is called the ________ date.

A)ex-rights
B)ex-dividend
C)record
D)payment
E)declaration

Answer 1

ex-dividend

Question 2

A payment made by a firm to its owners in the form of new shares of stock is called a ________ dividend.

A)stock
B)normal
C)special
D)extra
E)liquidating

Answer 2

stock

Question 3

The ability of shareholders to undo the dividend policy of a firm and create an alternative dividend payment policy via reinvesting dividends or selling shares of stock is referred to as:

A)the perfect foresight model.
B)MM Proposition I.
C)capital structure irrelevancy.
D)homemade leverage.
E)homemade dividends.

Answer 3

homemade dividends.

Question 4

A(n)________ is an alternative method to cash dividends which is used to pay out a firm's earnings to shareholders in the form of a cash payment.

A)merger
B)acquisition
C)payment-in-kind
D)stock split
E)stock repurchase

Question 5

The annual dividend per share stated as a percentage of the annual earnings per share is called the:

A)dividend yield.
B)dividend per share.
C)annual yield.
D)dividend rate.
E)dividend payout.

Question 6

A cash payment made by a firm to its owners in the normal course of business is called a:

A)share repurchase.
B)liquidating dividend.
C)regular cash dividend.
D)special dividend.
E)extra cash dividend.

Question 7

Which one of the following lists dividend events in the correct chronological order from earliest to latest?

A)Date of record,declaration date,ex-dividend date
B)Date of record,ex-dividend date,declaration date
C)Declaration date,date of record,ex-dividend date
D)Declaration date,ex-dividend date,date of record
E)Ex-dividend date,date of record,declaration date

Question 8

Which one of these statements is true?

A)Dividends are irrelevant.
B)Shareholders are unable to personally adjust the dividend policy set by a firm.
C)According to Miller and Modigliani,a firm should alter its investment policy whenever a change is made in its dividend policy.
D)Dividend policy is relevant.
E)Firms should never give up a positive NPV project to increase a dividend.

Question 9

Payments made out of a firm's earnings to its owners in the form of cash or stock are called:

A)dividends.
B)distributions.
C)share repurchases.
D)payments-in-kind.
E)stock splits.

Question 10

A firm can repurchase its shares in all the following ways except through:

A)a tender offer.
B)a reverse stock split.
C)a targeted repurchase.
D)open market purchases.
E)a Dutch auction.

Question 11

The date by which a stockholder must be registered on the firm's roll as having share ownership in order to receive a declared dividend is called the:

A)ex-rights date.
B)ex-dividend date.
C)date of record.
D)date of payment.
E)declaration date.

Question 12

Ignoring taxes and all else held constant,the market value of a stock should decrease by the amount of the dividend on the:

A)dividend declaration date.
B)ex-dividend date.
C)date of record.
D)date of payment.
E)day after the date of payment.

Question 13

The last date on which you can purchase shares of stock and still receive the dividend is the date ________ business day(s)prior to the date of record.

A)zero
B)one
C)three
D)five
E)seven

Question 14

The date on which the board of directors passes a resolution authorizing payment of a dividend to the shareholders is the ________ date.

A)ex-rights
B)ex-dividend
C)record
D)payment
E)declaration

Question 15

A firm announces that it is willing to repurchase a number of shares at various prices and shareholders have the option to indicate how many shares they are willing to sell at the various prices.This process is called a:

A)homemade dividend.
B)tender offer.
C)free market sale.
D)Dutch auction.
E)targeted repurchase.

Question 16

The dividend-irrelevance proposition of Miller and Modigliani depends on which one of the following relationships between investment policy and dividend policy?

A)The level of investment does not influence or matter to the dividend decision.
B)Once dividend policy is set the investment decision can be made.
C)The investment policy is set ahead of time and not altered by changes in dividend policy.
D)Since dividend policy is irrelevant there is no relationship between investment policy and dividend policy.
E)Miller and Modigliani were only concerned about capital structure.

Question 17

Leslie purchased 100 shares of GT stock on June 7th.Marti purchased 100 shares of GT stock on Monday,July 9th.GT declared a dividend on June 20th to shareholders of record on July 13th that is payable on August 1st.Which one of the following statements concerning the dividend paid on August 1st is correct given this information?

A)Neither Leslie nor Marti are entitled to the dividend.
B)Leslie is entitled to the dividend but Marti is not.
C)Marti is entitled to the dividend but Leslie is not.
D)Both Marti and Leslie are entitled to the dividend.
E)Both Marti and Leslie are each entitled to one-half of the dividend amount.

Question 18

The date on which a firm actually distributes its declared dividend is called the:

A)ex-rights date.
B)ex-dividend date.
C)date of record.
D)date of payment.
E)declaration date.

Question 19

Nu Tech is a technology firm with good growth prospects.The firm wishes to do something to acknowledge the loyalty of its shareholders but needs all its available cash to fund its rapid growth.The market price of its stock is currently trading in the upper end of its preferred trading range.The firm could consider:

A)a liquidating dividend.
B)an extra cash dividend.
C)a reverse stock split.
D)a stock dividend.
E)a cash distribution.

Question 20

A cash payment made by a firm to its owners when some of the firm's assets are sold off is called a:

A)liquidating dividend.
B)regular cash dividend.
C)special dividend.
D)extra cash dividend.
E)share repurchase.

Question 21

Assume personal tax rates are lower than corporate tax rates.From a tax-paying shareholder point of view,how should a firm spend its excess cash once it has funded all positive net present value projects?

A)Repurchase shares
B)Acquire another firm
C)Purchase financial assets
D)Increase cash dividends
E)Increase executive compensation

Question 22

The information content of a dividend increase generally signals that:

A)the firm has a one-time surplus of cash.
B)the firm has several net present value projects to pursue.
C)management believes the future earnings of the firm will be strong.
D)the firm has more cash than it needs due to sales declines.
E)future dividends will be lower.

Question 23

The market's reaction to the announcement of a change in the firm's dividend payout is referred to as the:

A)information content effect.
B)clientele effect.
C)efficient markets hypothesis.
D)MM Proposition I.
E)MM Proposition II.

Question 24

According to the clientele effect,firms can only boost their stock price:

A)by increasing the dividend payout ratio.
B)by increasing their regular cash dividends.
C)by setting their dividend to the level expected by the highest-dividend-receiving satisfied clientele group.
D)by commencing dividend payments if they are a non-dividend-paying firm.
E)if an unsatisfied clientele group exists.

Question 25

Which one of these is a con of paying dividends?

A)Paying dividends reduces agency costs when excess cash is available to a firm.
B)Dividends can be used to signal a firm's optimistic outlook.
C)Dividends are frequently taxed as ordinary income.
D)Dividends appeal to income-seeking investors.
E)Managers can pay dividends to keep cash from bondholders.

Question 26

Which one of these statements is correct?

A)In the U.S.economy,dividends are quite insignificant.
B)Over the last few decades,the percentage of U.S.firms paying dividends has increased.
C)The tax law change in May 2003 is cited as one reason why the percentage of dividend payers has decreased in the U.S.
D)Dividends are more tax-advantaged than capital gains as of 2017.
E)Much of the dividend income paid in the U.S.is related to a relatively small number of firms.

Question 27

The information content effect implies that stock prices will rise when dividends are increased provided that the dividend increase:

A)is denoted as a one-time event.
B)causes stockholders to increase their expectations of future cash flows.
C)is greater than the average historical dividend increase.
D)is substantial in both dollar amount and percentage terms.
E)is combined with a stock repurchase.

Question 28

The observed empirical fact that stocks attract particular investors based on the firm's dividend policy and the resulting tax impact on investors is called the:

A)information content effect.
B)clientele effect.
C)efficient markets hypothesis.
D)MM Proposition I.
E)MM Proposition II.

Question 29

From a tax-paying investor's point of view,a stock repurchase:

A)is equivalent to a cash dividend.
B)is more desirable than a cash dividend.
C)has the same tax effects as a cash dividend.
D)is more highly taxed than a cash dividend.
E)creates a tax liability even if the investor does not sell any of the shares he owns.

Question 30

Which one of these is a characteristic of a sensible payout policy?

A)Over time pay out half of all free cash flows
B)Set the current regular dividend consistent with a 100 percent payout ratio
C)Increase regular dividends to distribute transitory cash flow increases
D)Set the dividends high even if it means acquiring expensive external financing
E)Avoid rejecting positive NPV projects to increase dividends or buyback shares

Question 31

A scenario exists that supports an argument in favor of a low dividend policy when:

A)tax laws allow capital gains to be deferred until the gain is realized.
B)few,if any,positive net present value projects are available to a firm.
C)a preponderance of stockholders have minimal taxable income.
D)the majority of the stockholders have other investment opportunities that offer higher rewards with similar risk characteristics.
E)corporate tax rates exceed personal tax rates.

Question 32

The behavioral finance concept of self-control is an argument in favor of:

A)frequent stock splits.
B)low cash dividends.
C)stock dividends.
D)reverse stock splits.
E)high cash dividends.

Question 33

Financial executives place the greatest importance on which one of these factors when setting dividend policy?

A)Setting a high-dividend payout ratio even when earnings are unstable
B)Maintaining a consistent dividend policy
C)Increasing current dividends even if those dividends need to be lowered in the near future
D)Reducing dividends anytime future earnings are in doubt
E)Attracting institutional investors

Question 34

Which one of the following is not a reason why firms choose repurchases rather than dividends?

A)Provide flexibility
B)Increase the value of existing stock options
C)Provide shareholders with a tax advantage
D)Offset dilution
E)Conserve cash

Question 35

Of the following factors,which one is considered to be the primary factor affecting a firm's dividend payout decision?

A)Considering the personal taxes of company stockholders
B)Maintaining a consistent dividend policy
C)Attracting retail investors
D)Attracting institutional investors
E)Avoiding flotation costs

Question 36

Based on the concept of the clientele effect,which one of these combinations correctly aligns an investor group with its preferred type of stocks?

A)Low-tax-bracket individuals; zero-to-low payout stocks
B)High-tax-bracket individuals; low-to-medium payout stocks
C)Corporations; low-to-medium payout stocks
D)Tax-free institutions; medium-payout stocks
E)High-tax-bracket individuals; high-payout stocks

Question 37

Firms generally:

A)set high target payout ratios when they are relatively young.
B)decrease their dividends as soon as they expect earnings to decline.
C)allow their dividend changes to lag their earnings changes.
D)set short-term target ratios of dividends to earnings.
E)set the dividend growth rate equal to the firm's earnings growth rate.

Question 38

Ignore commissions,taxes,and other imperfections.If a firm substitutes a repurchase for a cash dividend,the primary difference will be an increase in the:

A)earnings per share.
B)total value received by each investor.
C)total earnings of the firm.
D)excess cash reserves of the firm.
E)number of shares outstanding.

Question 39

Which one of the following is cited as an argument favoring a high dividend payout?

A)Flotation costs involved with a new securities issue
B)High personal tax rates relative to corporate rates
C)Desire to maintain constant dividends over time
D)Restrictive covenant on dividend payouts contained in a bond indenture agreement
E)Agency costs related to excess cash reserves

Question 40

Financial managers:

A)are reluctant to cut dividends.
B)tend to ignore past dividend policies.
C)tend to prefer cutting dividends every time quarterly earnings decline.
D)prefer cutting dividends over incurring flotation costs.
E)place little emphasis on dividend policy consistency.

Question 41

On May 18th,you purchased 1,000 shares of Buy Lo stock.On June 5th,you sold 200 shares of this stock for $21 a share.You sold an additional 400 shares on July 8th at a price of $22.50 a share.The company declared a $.50 per share dividend on June 25th to holders of record as of Thursday,July 10th.This dividend is payable on July 31st.How much dividend income will you receive on July 31st as a result of your ownership of this firm's stock?

A)$100
B)$200
C)$300
D)$400
E)$500

Question 42

All else equal,a stock dividend will ________ the number of shares outstanding and ________ the value per share.

A)increase; increase
B)increase; decrease
C)not change; increase
D)decrease; increase
E)decrease; decrease

Question 43

You purchased 200 shares of ABC stock on July 15th.On July 20th,you purchased another 100 shares and then on July 22nd you purchased your final 200 shares of ABC stock.The company declared a dividend of $1.10 a share on July 5th to holders of record on Friday,July 23rd.The dividend is payable on July 31st.How much dividend income will you receive on July 31st from ABC?

A)$0
B)$220
C)$330
D)$440
E)$550

Question 44

A ________ will increase the number of shares outstanding without affecting the book value of any of the owners' equity account values.

A)special dividend
B)stock split
C)share repurchase
D)tender offer
E)liquidating dividend

Question 45

Probably the best argument for a reverse stock split is to:

A)decrease the liquidity of a stock.
B)decrease the market value per share.
C)increase the number of stockholders.
D)maintain a minimum share price as set by a stock exchange.
E)raise additional capital from current stockholders.

Question 46

In a reverse stock split the:

A)number of shares outstanding increases and the owners' equity decreases.
B)firm buys back existing shares of stock on the open market.
C)firm sells new shares of stock on the open market.
D)number of shares outstanding decreases while the book value of owners' equity is unchanged.
E)shareholders make a cash payment to the firm.

Question 47

Stock splits are often used to:

A)adjust the market price of a stock such that it falls within a preferred trading range.
B)decrease the excess cash held by a firm.
C)increase both the number of shares outstanding and the market price per share.
D)increase the total equity of a firm.
E)adjust the debt-equity ratio such that it falls within a preferred range.

Question 48

Priscilla owns 500 shares of Deltona stock.It is January 1,2018,and the company recently issued a statement that it will pay a $1 per share dividend on December 31,2018,a $2.50 per share dividend on December 31,2019,and then cease all dividend payments.Priscilla does not want any dividend income this year but does want as much dividend income as possible next year.Priscilla can earn 8 percent on her investments.Ignoring taxes,what will Priscilla's homemade dividend per share be in 2019?

A)$3.78
B)$3.50
C)$2.50
D)$3.58
E)$1.08

Question 49

A change in dividend policy does not affect the value of a share of stock as long as:

A)the dividend payout ratio remains constant.
B)all future dividends are changed by the same amount.
C)all the distributable cash flow is paid out.
D)there is an offsetting change in stock repurchases.
E)shareholders are given ample warning.

Question 50

You own 300 shares of Abco stock.The firm plans on issuing a dividend of $2.10 a share one year from today and then issuing a final liquidating dividend of $36.45 a share two years from today.Your required rate of return is 14.5 percent.Ignoring taxes,what is the value of one share of this stock to you today?

A)$33.93
B)$29.64
C)$26.62
D)$27.80
E)$31.05

Question 51

A stock split:

A)increases the total book value of the common stock account.
B)decreases the book value of the retained earnings account.
C)does not affect the total book value of any of the equity accounts.
D)increases the book value of the capital in excess of par account.
E)decreases the total owners' equity on the balance sheet.

Question 52

A small stock dividend is generally defined as a stock dividend of less than ________ percent.

A)10 to 15
B)15 to 20
C)20 to 25
D)25 to 30
E)30 to 35

Question 53

Alpha Co.is paying a $.72 per share dividend today.There are 138,000 shares outstanding with a par value of $1 per share.As a result of this dividend,the:

A)retained earnings will decrease by $99,360.
B)retained earnings will decrease by $138,000.
C)common stock account will decrease by $138,000.
D)common stock account will decrease by $99,360.
E)capital in excess of par value account will decrease by $99,360.

Question 54

Allison's has a market value equal to its book value.Currently,the firm has excess cash of $1,100 and other assets of $12,400.Equity is worth $13,500.The firm has 2,500 shares of stock outstanding and net income of $10,800.What will be the new earnings per share if the firm uses its excess cash to complete a stock repurchase?

A)$4.32
B)$4.50
C)$4.82
D)$4.70
E)$4.40

Question 55

Wydex stock is currently trading at $82 a share.The firm feels that its primary clientele can afford to spend between $2,000 and $2,500 to purchase a round lot of 100 shares.The firm should consider a:

A)reverse stock split.
B)liquidating dividend.
C)stock dividend.
D)stock split.
E)special dividend.

Question 56

Schaeffer Shippers announced on May 1 that it will pay a dividend of $1.20 per share on June 15 to all holders of record as of May 31st.The firm's stock price closed today at $42 a share.Assume all investors are in the 22 percent tax bracket.If tomorrow is the ex-dividend date,what would you expect the opening price to be tomorrow morning assuming all else is held constant?

A)$42.00
B)$43.20
C)$41.06
D)$42.94
E)$41.66

Question 57

A one-for-four reverse stock split will:

A)increase the par value by 25 percent.
B)increase the number of shares outstanding by 400 percent.
C)increase the market value but not affect the par value per share.
D)increase a $1 par value to $4.
E)increase a $1 par value by $4.

Question 58

Share repurchases:

A)reduce a firm's demand for external financing.
B)offer less tax advantages to shareholders than do cash dividends.
C)tend to increase agency costs.
D)are always positive net present value investments.
E)can be difficult to verify.

Question 59

You own 200 shares of Loner stock.The firm announced that it will be issuing a dividend of $.20 a share one year from today followed by a final liquidating dividend of $1.60 a share two years from today.If you can earn 7 percent on your funds,what will be the value of your total investment income in two years if you do not want to receive any funds until then?

A)$362.80
B)$266.67
C)$302.30
D)$348.04
E)$247.78

Question 60

The Rent It Company declared a dividend of $.60 a share on October 20th to holders of record on Monday,November 1st.The dividend is payable on December 1st.You purchased 100 shares of this stock on Wednesday,October 27th.How much dividend income will you receive on December 1st as a result of this declaration?

A)$0
B)$1.50
C)$6.00
D)$15.00
E)$60.00

Question 61

Davidsons has 15,000 shares of stock outstanding with a par value of $1 per share and a market value of $45 per share.The balance sheet shows $15,000 in the common stock account,$158,000 in the capital in excess of par account,and $132,500 in the retained earnings account.The firm just announced a stock dividend of 50 percent.What is the value of the retained earnings account after the dividend?

A)$125,000
B)$117,500
C)$132,500
D)$140,000
E)$147,500

Question 62

Kelso's balance sheet shows $15,000 in the common stock account,$315,000 in the capital in excess of par account,and $189,000 in the retained earnings account.The firm just announced a 3-for-2 stock split.What will be the value of the common stock account after the split if the par value per share is $1?

A)$10,000
B)$12,500
C)$15,000
D)$18,500
E)$22,500

Question 63

Assume Downtown Markets latest balance sheet shows $15,000 in the common stock account,$315,000 in the capital in excess of par account,and $189,000 in the retained earnings account.What will be the capital in excess of par account value if the firm does a 5-for-3 stock split?

A)$126,000
B)$210,000
C)$283,500
D)$315,000
E)$472,500

Question 64

Robinson's has 15,000 shares of stock outstanding with a market price of $6 a share.What will be the market price per share if the firm does a 1-for-3 reverse stock split?

A)$18
B)$24
C)$42
D)$48
E)$54

Question 65

Assume you own 300 shares of ABC stock and receive a stock dividend of 5 percent.As a result,the number of shares you own will change to ________ shares while your total wealth will increase by ________ percent.

A)305; 5
B)315; 0
C)305; 0
D)315; 5
E)300; 5

Question 66

Murphy's has shares of stock outstanding with a par value of $1 per share and a market value of $24.60 per share.The balance sheet shows $32,500 in the capital in excess of par account,$12,000 in the common stock account,and $68,700 in the retained earnings account.The firm just announced a stock dividend of 10 percent.What will be the balance in the retained earnings account after the dividend?

A)$39,180
B)$48,300
C)$59,120
D)$67,520
E)$40,380

Question 67

Samuel's has 42,000 shares of stock outstanding with a par value of $1 per share and a market price per share of $41.The balance sheet shows $1,358,000 in the capital in excess of par account and $2,212,500 in the retained earnings account.The firm just announced a stock dividend of 50 percent.What is the value of the capital in excess of par account after the dividend?

A)$1,358,000
B)$612,500
C)$518,000
D)$497,000
E)$221,900

Question 68

The Retail Outlet has 6,000 shares of stock outstanding and the current market value of the firm is $429,000.The company just announced a 2-for-1 stock split.What will be the market price per share after the split?

A)$35.75
B)$40.50
C)$80.50
D)$71.50
E)$50.25

Question 69

Assume a firm has a market value equal to its book value,excess cash of $900,other assets of $16,500,and equity valued at $17,400.The firm has 1,200 shares of stock outstanding and net income of $15,400.If the firm spends all of its excess cash on share repurchases,how many shares will be outstanding after the repurchases are completed? (Round your answer up to the nearest whole share)

A)1,148 shares
B)1,135 shares
C)1,138 shares
D)1,164 shares
E)1,142 shares

Question 70

Brown's Market has 15,000 shares of stock outstanding with a par value of $1 per share and a market value per share of $8.The firm just announced a stock dividend of 10 percent.What will be the market price per share after the dividend?

A)$7.20
B)$7.27
C)$7.33
D)$8.00
E)$8.80

Question 71

The Tinslow Co.has 125,000 shares of stock outstanding at a market price of $93 a share.The company has just announced a 5-for-2 stock split.How many shares of stock will be outstanding after the split?

A)50,000
B)75,000
C)156,250
D)175,000
E)312,500

Question 72

Downtown Deli has 2,000 shares of stock outstanding with a par value of $1 per share and a market value of $26 per share.The balance sheet shows $2,000 in the common stock account,$9,500 in the capital in excess of par account,and $14,500 in the retained earnings account.The firm just announced a stock dividend of 75 percent.What is the market value per share after the dividend?

A)$36.00
B)$14.86
C)$45.50
D)$13.50
E)$12.00

Question 73

The Saw Mill has shares of stock outstanding with a par value of $1 per share and a market-to-book ratio of 2.1.The balance sheet shows $5,000 in the common stock account,$58,000 in the capital in excess of par account,and $32,500 in the retained earnings account.The firm just announced a stock dividend of 50 percent.What is the book value of the common stock account after the dividend?

A)$10,000
B)$8,500
C)$9,000
D)$7,500
E)$5,000

Question 74

Robinson's has 15,000 shares of stock outstanding with a par value of $1 per share and a market price of $36 a share.How many shares of stock will be outstanding of the firm does a 3-for-2 stock split?

A)10,000 shares
B)12,500 shares
C)20,000 shares
D)22,500 shares
E)27,500 shares

Question 75

A firm has a market value equal to its book value,excess cash of $1,000,and equity worth $17,800.The firm has 5,000 shares of stock outstanding and net income of $31,200.What will be the new earnings per share if the firm uses its excess cash to complete a stock repurchase?

A)$7.20
B)$6.50
C)$6.61
D)$5.89
E)$6.23

Question 76

The Retail Outlet has 8,000 shares of stock outstanding with a par value of $1 per share.The current market value of the firm is $620,000.The balance sheet shows a capital in excess of par account value of $66,000 and retained earnings of $234,000.The company just announced a 3-for-1 stock split.What will be the retained earnings account balance after the split?

A)$117,000
B)$234,000
C)$351,000
D)$410,000
E)$468,000

Question 77

A firm has a total market value of $89,600 with 6,500 shares of stock outstanding.What will be the total market value of the firm if it does a 1-for-2 reverse stock split?

A)$179,200
B)$148,300
C)$122,300
D)$89,600
E)$44,800

Question 78

DD&L has a market value equal to its book value,excess cash of $400,other assets of $7,600,equity of $8,000,200 shares of stock outstanding,and net income of $900.The firm has decided to pay out all its excess cash as a cash dividend.What will be the earnings per share after the dividend is paid?

A)$4.68
B)$4.74
C)$4.59
D)$4.80
E)$4.50

Question 79

Deep Water Drilling has 160,000 shares of stock outstanding at a market price of $109 a share.The company has just announced a 7-for-3 stock split.What will be the market price per share after the split?

A)$38.27
B)$46.71
C)$48.40
D)$46.18
E)$48.80

Question 80

Jensen's has a market value equal to its book value,excess cash of $500,other assets of $9,500,and equity worth $10,000.The firm has 250 shares of stock outstanding and net income of $1,400.What will be the stock price per share if the firm pays out its excess cash as a cash dividend?

A)$36
B)$38
C)$40
D)$42
E)$44