Question 1

The board of directors of Wilson Sporting Equipment met this afternoon and passed a resolution to pay a cash dividend of $0.42 a share next month.In relation to this dividend,today is referred to as which one of the following dates?

Accepted Answer

The declaration date is the date on which a company's board of directors announces the payment of a dividend. This is the date when Wilson Sporting Equipment's board of directors passed a resolution to pay a dividend, making the correct choice C.

Question 2

Kate purchased 500 shares of Fast Deliveries stock on Wednesday,July 7^th.Ted purchased 100 shares of Fast Deliveries stock on Thursday,July 8^th.Fast Deliveries declared a dividend on June 20^th to shareholders of record on July 12^th and payable on August 1^st.Which one of the following statements concerning the dividend paid on August 1^st is correct given this information?

Accepted Answer

To be entitled to the dividend, an investor must be a shareholder of record on the date of record, which was July 12th. Kate purchased her shares on July 7th, so she was a shareholder of record and is entitled to the dividend. Ted purchased his shares on July 8th, so he was not a shareholder of record on July 12th and is therefore not entitled to the dividend. Therefore, only Kate is entitled to the dividend but Ted is not. Choice B is correct.

Question 3

Which one of the following refers to the ability of shareholders to undo a firm's dividend policy and create an alternative dividend policy by reinvesting dividends or selling shares of stock?

Accepted Answer

The ability of shareholders to undo a firm's dividend policy and create an alternative dividend policy by reinvesting dividends or selling shares of stock is referred to as a homemade dividend policy. This means that shareholders are able to create their own preferred dividend payout by reinvesting their dividends or selling shares, rather than relying on the firm's predetermined dividend policy.

Question 4

The ex-dividend date is defined as _____ business day(s)before the date of record.

Accepted Answer

The ex-dividend date is defined as 2 business days before the date of record. This is because stock trades typically settle in 2 business days (T+2 settlement), ensuring the seller, not the buyer, receives the dividend if the stock is sold around the record date.

Question 5

The common stock of Pierson Enterprises has historically had a high dividend yield and is expected to continue to do so.As a result,the majority of its shareholders are individuals and entities that are seeking a regular source of cash income.Most of these shareholders pay either no taxes or a relatively low amount of taxes.The fact that most of these shareholders have similar characteristics is referred to by which one of the following terms?

Accepted Answer

The situation described in the scenario is an example of the clientele effect, which refers to the tendency for companies to attract shareholders with similar preferences for the company's financial characteristics (in this case, a high dividend yield). These shareholders are often referred to as the company's "clientele."

Question 6

Which one of the following statements related to cash dividends is correct?

Accepted Answer

A dividend becomes a liability once it has been declared by the board of directors. Until then, it is simply an anticipated cash outflow that may or may not happen.

Note: The other statements are incorrect. Extra cash dividends can be repeated in the future, there is no legal obligation for a firm to continue paying regular dividends, regular cash dividends do not reduce paid-in capital, and the dividend yield expresses the annual dividend as a percentage of the stock price, not net income.

Question 7

What is the information content effect?

Accepted Answer

The information content effect refers to the financial market's reaction to a change in the amount of a firm's dividend. This reaction can result in changes to the stock price and other associated market variables. Choices A, B, C, and D are not accurate descriptions of the information content effect.

Question 8

Bell Weather Markets has recently sold for as little as $8 a share and as much as $15 a share.The difference between these two prices is referred to as the:

Accepted Answer

The difference between the lowest price of $8 and the highest price of $15 is known as the trading range.

Question 9

Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding?

Accepted Answer

A stock split does not affect the total equity of a firm but increases the number of shares outstanding by dividing existing shares into multiple shares. Special dividend, share repurchase, rights offer, and liquidating dividend all affect the total equity of a firm in different ways.

Question 10

The last date on which you can purchase shares of stock and still receive the dividend is the date which is _____ business days prior to the date of record.

Accepted Answer

The last date to purchase shares and receive the dividend is typically referred to as the "ex-dividend" date. This is the first day that a stock trades without the dividend. The date of record, on the other hand, is the day on which the company determines who is eligible to receive the dividend. This is typically a few business days after the ex-dividend date. The time between the ex-dividend date and the date of record allows for any necessary paperwork to be processed. In general, the ex-dividend date is set three business days before the record date. Therefore, the answer is C) 3.

Question 11

Billingsley United declared a $0.20 a share dividend on Thursday,October 16.The dividend will be paid on Monday,November 10 to shareholders of record on Friday,October 31.Which one of the following is the ex-dividend date?

Accepted Answer

The answer of Billingsley United declared a $0.20 a share...

Question 12

HJ Corporation has excess cash and has opted to buy some of its shares of outstanding common stock.What is this process of buying called?

Accepted Answer

The process of buying a company's own shares from the market is called stock repurchase or share buyback. It is usually done by a company when it has excess cash and wants to reduce the number of outstanding shares to increase the earnings per share (EPS) and boost the stock price. A stock dividend is a distribution of additional shares to existing shareholders, a stock split is a division of existing shares into multiple shares, a stock recapitalization is a change in the company's capital structure, and a stock repeal is not a valid financial term.

Question 13

Green Roof Motels has more cash on hand than its operations require.Thus,the firm has decided to pay out some of its earnings in the form of cash to its shareholders.What are these payments to shareholders called?

Accepted Answer

Dividends are payments made by a company to its shareholders out of its profits or reserves. In this case, Green Roof Motels has excess cash on hand and has chosen to distribute some of it to its shareholders in the form of dividends.

Question 14

Dividend payments are mailed on which one of the following dates?

Accepted Answer

Dividend payments are mailed on the date of payment, which is the actual date that the dividend is paid out to shareholders. This date is typically determined by the company's board of directors and can be found in the company's dividend declaration. The other dates listed (ex-rights date, ex-dividend date, date of record, and declaration date) are important for determining who receives the dividend and when, but they do not relate to the actual date of payment.

Question 15

A reverse stock split is defined as:

Accepted Answer

A reverse stock split is when a company reduces the number of outstanding shares by consolidating them into a smaller number. For example, a 1-for-10 reverse stock split would mean that 10 existing shares would be consolidated into one new share. This does not affect owners' equity since the total value of the company is spread across a smaller number of shares. Therefore, the correct answer is D.

Question 16

Which one of the following dates is used to determine the names of shareholders who will receive a dividend payment?

Accepted Answer

The date of record is used to determine the shareholders who will receive a dividend payment. This is the date on which the company reviews its records to identify those shareholders who are entitled to receive the dividend payment. The ex-dividend date is the date on which a stock begins trading without its dividend, and the ex-rights date is the date on which the rights to subscribe to a new stock issue expire. The declaration date is the date on which a company announces its dividend payment, and the date of payment is the date on which the dividend is actually paid to eligible shareholders.

Question 17

A $0.60 quarterly cash payment paid by T.L.Jones & Co.to its shareholders in the normal course of business is called a:

Accepted Answer

A regular cash dividend is a recurring payment made by a company to its shareholders on a regular basis, usually quarterly. It is a normal course of business and does not involve any one-off events or special circumstances. Therefore, the $0.60 quarterly cash payment made by T.L. Jones & Co. to its shareholders would be considered a regular cash dividend.

Question 18

Taylor's Tools declared a $0.48 per share dividend on Friday,March 7.The dividend will be paid on Monday,April 7.The ex-dividend date is Tuesday,March 18.What is the record date?

Accepted Answer

The answer of Taylor's Tools declared a $0.48 per share...

Question 19

Which one of the following involves a payment in shares by a stock issuer that increases the number of shares a shareholder owns but also decreases the value per share?

Accepted Answer

A stock dividend involves a payment in additional shares, which increases the number of shares a shareholder owns. However, the value per share decreases because it is spread over a larger number of shares. This is different from a stock split, which also increases the number of shares but maintains the same overall value per share.

Question 20

Lester's Frozen Foods just paid out $0.50 a share to its shareholders.The cash for these payments came from a large sale of assets,not from any earnings of the firm.What are these payments to shareholders called?

Accepted Answer

These payments are called distributions because they are not derived from the company's earnings but rather from the proceeds of a sale of assets. Dividends typically come from earnings, making "distributions" the correct term for payments from other sources like asset sales.

Quiz 17: Dividends and Payout Policy