Question 1

Firms can repurchase shares in the following ways:
i.open market repurchase; II)tender offer; III)Dutch auction; IV)direct negotiation with a major shareholder
A)I only
B)II only
C)III only
D)I,II,III,and IV

Accepted Answer

All the four ways mentioned are legitimate ways for firms to repurchase their shares:
I. Open market repurchase: In this case, the firm buys its own shares from the open market over a period of time. This option provides flexibility in pricing and timing of repurchase.
II. Tender offer: In this case, the firm makes a public offer to its shareholders to buy back their shares at a premium price. This option is often used when the firm wants to repurchase a large number of shares quickly.
III. Dutch auction: In this case, the firm sets a range of prices at which it is willing to buy back shares and shareholders can bid for the price at which they are willing to sell their shares. This option ensures that the firm gets the best price for its shares.
IV. Direct negotiation with a major shareholder: In this case, the firm negotiates with a major shareholder to repurchase their shares. This option is often used when the firm wants to maintain a certain ownership structure or avoid a hostile takeover.

Question 2

Consider the procedure whereby the firm states a series of prices at which it is prepared to repurchase stock.Shareholders then submit offers indicting how many shares they wish to sell and at which price.The firm then calculates the lowest price at which it is able to buy the desired number of shares.This procedure is known as a(n):
A)open market repurchase.
B)Dutch auction.
C)green mail.
D)tender offer.

Accepted Answer

The procedure described is a Dutch auction, where the firm sets a range of prices, and shareholders submit offers to sell their shares at a specific price within that range. The firm then determines the lowest price at which it can buy the number of shares it desires. Open market repurchases involve the firm buying shares on the open market, green mail involves a hostile bidder buying shares from a target company, and tender offers involve the firm setting a fixed price at which it is willing to buy shares from shareholders.

Question 3

On January 2,Michigan Mining declared a $2-per-share quarterly dividend payable on March 9^th to stockholders of record on Friday,February 9.What is the latest date by which you could purchase the stock and still get the recently declared dividend? A)February 5 B)February 6 C)February 7 D)February 8

Accepted Answer

To receive the declared dividend, you must purchase the stock before the ex-dividend date, which is typically two business days before the record date. Since the record date is February 9 (a Friday), the ex-dividend date would be February 7 (Wednesday). Therefore, the latest you could purchase the stock and still receive the dividend would be February 6, the day before the ex-dividend date.

Question 4

Which of these dates,when arranged in chronological order,occurs last?
A)dividend payment date
B)ex-dividend date
C)record date
D)dividend declaration date

Accepted Answer

The dividend payment date is the date when the actual dividend is paid to the shareholders, thus it occurs last in the series of events related to dividend distribution. The dividend declaration date is the date on which the company's board of directors declares the dividend, the ex-dividend date is the date on which shares start trading without the right to the upcoming dividend, and the record date is the date on which shareholders who are entitled to receive the dividend are determined.

Question 5

What is the likely impact on a typical individual investor if a firm undertakes a stock repurchase in lieu of a cash dividend?
A)Lower income taxes,if capital gains tax rates are less than dividend tax rates
B)Higher income taxes,if capital gains tax rates are less than dividend tax rates
C)Lower share price
D)A tax-free transaction

Accepted Answer

If a firm undertakes a stock repurchase instead of a cash dividend, it will lower the number of outstanding shares, which would increase earnings per share and could lead to an increase in the stock price. If the investor sells the stock after the buyback, they may recognize a capital gain, which would be taxed at a lower rate than dividends, resulting in lower income taxes. Therefore, lower income taxes are likely.

Question 6

Generally,firms engage in stock repurchases during:
I.boom times as firms accumulate excess cash;
II.recessions due to low stock prices;
III.times when competitor's stock prices are dropping
A)I only
B)II only
C)III only
D)II and III only

Accepted Answer

Firms typically engage in stock repurchases during boom times as they accumulate excess cash. This allows them to return value to shareholders by buying back shares, often when the company's stock is perceived to be undervalued or when the company has surplus cash that it wishes to distribute in a tax-efficient manner.

Question 7

A Dutch auction is the same as a(an):
A)discriminatory price auction.
B)uniform price auction.
C)English auction.
D)share repurchase.

Accepted Answer

A Dutch auction is a type of uniform price auction where the auctioneer starts with a high asking price and gradually lowers it until someone bids. All successful bidders pay the same price, which is equal to the final asking price.

Question 8

Suppose that there are no taxes,transactions costs,or other market imperfections.Which of the following actions is most likely to make shareholders better off?
A)Increase dividends.
B)Reduce share repurchases.
C)Announce that dividends will not change for at least three years.
D)Eliminate negative-NPV projects.

Accepted Answer

Eliminating negative-NPV projects will increase the overall profitability of the company, leading to higher share prices and ultimately benefiting shareholders. The other options, such as increasing dividends or announcing a stable dividend policy, will only affect shareholder wealth in the short term and may not necessarily result in long-term benefits. Reducing share repurchases may also signal a lack of confidence in the company's future prospects, negatively impacting shareholder wealth.

Question 9

According to financial executives' views on dividend policy,which of the following statements is most frequently cited?
A)We try to avoid reducing the dividend.
B)We try to maintain a smooth dividend stream.
C)We look at the current dividend level.
D)We are reluctant to make a change that may have to be reversed.

Accepted Answer

The answer of According to financial executives' views on dividend...

Question 10

Firms can pay out cash to their shareholders in the following ways:
i.dividends; II)share repurchases; III)interest payments
A)I only
B)II only
C)I and II only
D)III only

Accepted Answer

Dividends and share repurchases are both common ways for firms to pay out cash to their shareholders. Interest payments, on the other hand, are payments made to lenders, not shareholders. Therefore, the correct choice is C, which includes both dividends and share repurchases.

Question 11

According to survey data,which is the least-often cited dividend policy consideration?
A)Firms want to avoid dividend reductions.
B)Firms desire a smooth dividend policy.
C)Firms avoid dividend policy reversals.
D)Firms would prefer to raise new funds rather than reduce dividends.

Accepted Answer

According to survey data, firms prioritize avoiding dividend reductions, maintaining a smooth dividend policy, and avoiding dividend policy reversals. Raising new funds rather than reducing dividends is the least-often cited consideration.

Question 12

Which of the following dividends is never in the form of cash?
I.regular dividend;
II.special dividend;
III.stock dividend;
IV.liquidating dividend
A)I only
B)II only
C)III only
D)I,II,and IV only

Accepted Answer

A stock dividend is the only type of dividend that is not in the form of cash. Regular, special, and liquidating dividends are all paid in cash.

Question 13

Dividend policy changes are decided by:
i.the managers of a firm; II)the government; III)the board of directors
A)I only
B)II only
C)III only
D)I and II only

Accepted Answer

Dividend policy changes are typically decided by the board of directors of a company. While managers may make recommendations or provide input, the ultimate decision rests with the board. The government does not typically play a role in deciding a company's dividend policy.

Question 14

Generally,investors view the announcement of an open-market repurchase program as:
A)bad news and the stock price drops.
B)good news and the stock price increases.
C)a nonevent and does not affect the stock price.
D)very bad news and the stock price plunges.

Accepted Answer

Investors typically view an open-market repurchase program as good news because it signals that the company believes its stock is undervalued and is willing to use its cash to buy back shares, which can increase the value of the remaining shares. Therefore, the stock price tends to increase in response to such an announcement.

Question 15

Generally,investors interpret the announcement of an increase in dividends as:
A)bad news and the stock price drops.
B)good news and the stock price increases.
C)a nonevent and does not affect the stock price.
D)very bad news and the stock price plunges.

Accepted Answer

Investors generally interpret the announcement of an increase in dividends as good news and the stock price increases. This is because an increase in dividends indicates that the company is generating more profits and has enough cash to distribute to its shareholders, which increases the attractiveness of the stock to investors.

Question 16

Which of the following are true?
I.Firms have long-run target dividend payout ratios.
II.Dividend changes follow shifts in long-term,sustainable earnings.
III.Managers are reluctant to make dividend changes that might have to be reversed.
A)I only
B)II only
C)III only
D)I,II,and III

Accepted Answer

I. Firms generally have a long-run target dividend payout ratio, which is based on factors such as their earnings, investment opportunities, and financial position. This is done to maintain stable and predictable dividends for shareholders.

II. Dividend changes are often influenced by changes in long-term, sustainable earnings. Companies may increase dividends if their earnings grow, and decrease dividends if their earnings decline.

III. Managers are often reluctant to make dividend changes that might have to be reversed as it can lead to a loss of credibility and confidence in the company from investors. Therefore, they try to maintain stability in the dividend payout ratio.

Question 17

Which of the following lists events in chronological order from earliest to latest?
A)Record date,declaration date,ex-dividend date
B)Declaration date,record date,ex-dividend date
C)Declaration date,ex-dividend date,record date
D)Record date,ex-dividend date,declaration date

Accepted Answer

The answer of Which of the following lists events in...

Question 18

Generally,investors interpret the announcement of a decrease in dividends as:
A)bad news and the stock price drops.
B)good news and the stock price increases.
C)a nonevent and does not affect the stock prices.
D)very good news and the stock price jumps up.

Accepted Answer

Investors generally view a decrease in dividends as bad news because it indicates that the company is experiencing financial difficulties or may not have enough cash to distribute to shareholders. This can lead to a drop in stock price as shareholders become less confident in the company's future prospects.

Question 19

The following statements are true of dividend reinvestment plans (DRIPs):
I.They are offered by the companies to their shareholders.
II.Generally,new shares are issued at a discount.
III.The dividends are taxable as ordinary income.
A)I only
B)I and III only
C)I,II,and III
D)III only

Accepted Answer

Dividend reinvestment plans (DRIPs) are indeed offered by companies directly to their shareholders, allowing them to reinvest dividends to purchase additional shares, often at a discount, which makes statement II true. Despite the reinvestment, the dividends are still considered taxable income by tax authorities, making statement III true as well.

Question 20

The par value of the outstanding shares is known as:
A)retained earnings.
B)legal capital.
C)book value of equity.
D)additional paid-in capital.

Accepted Answer

Legal capital refers to the minimum amount of capital that a company is required to maintain by law. The par value of the outstanding shares represents the legal capital of the company. Retained earnings represent the accumulated profits in the company, while the book value of equity represents the value of the company's assets minus liabilities. Additional paid-in capital refers to the amount of money investors have paid for shares above the par value.

Quiz 16: Payout Policy

Firms can repurchase shares in the following ways: i.open market repurchase; II) tender offer; III) Dutch auction; IV) direct negotiation with a major shareholder

On January 2,Michigan Mining declared a $2-per-share quarterly dividend payable on March 9^th to stockholders of record on Friday,February 9.What is the latest date by which you could purchase the stock and still get the recently declared dividend?

Which of these dates,when arranged in chronological order,occurs last?

What is the likely impact on a typical individual investor if a firm undertakes a stock repurchase in lieu of a cash dividend?

Generally,firms engage in stock repurchases during: I.boom times as firms accumulate excess cash; II.recessions due to low stock prices; III.times when competitor's stock prices are dropping

A Dutch auction is the same as a(an) :

Suppose that there are no taxes,transactions costs,or other market imperfections.Which of the following actions is most likely to make shareholders better off?

According to financial executives' views on dividend policy,which of the following statements is most frequently cited?

Firms can pay out cash to their shareholders in the following ways: i.dividends; II) share repurchases; III) interest payments

According to survey data,which is the least-often cited dividend policy consideration?

Which of the following dividends is never in the form of cash? I.regular dividend; II.special dividend; III.stock dividend; IV.liquidating dividend

Dividend policy changes are decided by: i.the managers of a firm; II) the government; III) the board of directors

Generally,investors view the announcement of an open-market repurchase program as:

Generally,investors interpret the announcement of an increase in dividends as:

Which of the following are true? I.Firms have long-run target dividend payout ratios. II.Dividend changes follow shifts in long-term,sustainable earnings. III.Managers are reluctant to make dividend changes that might have to be reversed.

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

Generally,investors interpret the announcement of a decrease in dividends as:

The following statements are true of dividend reinvestment plans (DRIPs) : I.They are offered by the companies to their shareholders. II.Generally,new shares are issued at a discount. III.The dividends are taxable as ordinary income.

The par value of the outstanding shares is known as: