Question 1

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

Accepted Answer

Kate is the only one who owned shares on the record date of July 12th, so she is entitled to the dividend. Ted purchased shares on July 8th, after the record date, so he is not entitled to the dividend.

Question 2

Which one of the following statements related to cash dividends is correct?
A)Extra cash dividends cannot be repeated in the future.
B)A dividend is never a liability until it has been declared.
C)If a firm has paid regular quarterly dividends for at least five consecutive years it is legally obligated to continue doing so.
D)Regular cash dividends reduce paid-in capital.
E)The dividend yield expresses the annual dividend as a percentage of net income.

Accepted Answer

A dividend is only a liability once it has been declared by the board of directors. The other options are incorrect: 
A) Extra cash dividends can be repeated in the future if the board decides to do so. 
C) While a firm may have an informal policy of paying regular dividends, it is not legally obligated to do so. 
D) Regular cash dividends do not reduce paid-in capital; instead they reduce retained earnings. 
E) The dividend yield expresses the annual dividend as a percentage of the stock price, not net income.

Question 3

The ex-dividend date is defined as _____ business day(s)before the date of record.
A)1
B)2
C)3
D)5
E)10

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 4

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:
A)price variance.
B)bid-ask spread.
C)trading range.
D)opening price.
E)closing price.

Accepted Answer

The difference between the highest and lowest prices of a stock in a given time period is known as the trading range. Therefore, the difference between Bell Weather Markets selling for $8 and $15 would be referred to as its trading range. Options A, B, D, and E are not appropriate choices as they do not accurately describe this concept.

Question 5

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?
A)dividends
B)stock payments
C)repurchases
D)payments-in-kind
E)stock splits

Accepted Answer

Dividends are payments made by a company to its shareholders as a distribution of its profits or earnings. It is a way for a company to share its financial success with its investors. In this case, Green Roof Motels has decided to pay out some of its earnings in the form of cash to its shareholders, which is called a dividend. The other options, such as stock payments, repurchases, payments-in-kind, or stock splits, do not refer to cash payments made by a company to its shareholders.

Question 6

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

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.

Question 7

Dividend payments are mailed on which one of the following dates?
A)ex-rights date
B)ex-dividend date
C)date of record
D)date of payment
E)declaration date

Accepted Answer

Dividend payments are mailed on the date of payment, which is the date when the company actually distributes the dividend to its shareholders. The ex-rights date, ex-dividend date, and date of record are important dates for shareholders to understand in relation to receiving dividends, but they are not the actual date when the payment is made. The declaration date is the date when the company announces its intention to pay a dividend, but again, this is not the date when the payment is actually made.

Question 8

What is the information content effect?
A)any type of new information that causes a firm to cease paying dividends
B)any news announcement that was anticipated and thus produces no reaction from investors
C)the primary contributing data that helps directors determine the amount of a particular dividend payment
D)any type of reaction from a shareholder in response to a news announcement related to the stock issuer
E)the financial market's reaction to a change in the amount of a firm's dividend

Accepted Answer

The information content effect refers to the financial market's reaction to a change in the amount of a firm's dividend, specifically how the change affects the stock price. This can include whether the change was anticipated or not, and how the market interprets the new information. Choices A, B, C and D are not related to the information content effect.

Question 9

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?
A)Tuesday, October 28
B)Wednesday, October 29
C)Thursday, October 30
D)Wednesday, November 5
E)Thursday, November 6

Accepted Answer

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

Question 10

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?
A)cash dividend
B)stock dividend
C)stock repurchase
D)stock split
E)reverse stock split

Accepted Answer

A stock dividend involves the payment of additional shares to shareholders, increasing the number of shares they hold, but this also dilutes their ownership and decreases the value per share. Cash dividend, stock repurchase, stock split, and reverse stock split do not necessarily decrease the value per share.

Question 11

Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding?
A)special dividend
B)stock split
C)share repurchase
D)rights offer
E)liquidating dividend

Accepted Answer

A stock split does not affect the total equity of a firm because it does not change the total value of the shares outstanding. However, it does increase the number of shares outstanding while decreasing the price per share proportionally. Therefore, the total market value of the shares remains the same. The other options (special dividend, share repurchase, rights offer, and liquidating dividend) can all affect the total equity of a firm in different ways.

Question 12

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?
A)Friday, March 14
B)Monday, March 17
C)Wednesday, March 19
D)Thursday, March 20
E)Friday, March 21

Accepted Answer

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

Question 13

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.
A)1
B)2
C)3
D)4
E)5

Accepted Answer

The last date on which you can purchase shares of stock and still receive the dividend is known as the ex-dividend date. This date is normally set two business days before the record date. Therefore, investors must purchase shares at least three business days before the record date to ensure that they receive the dividend. Choice C) 3 is the most accurate answer.

Question 14

Which one of the following dates is used to determine the names of shareholders who will receive a dividend payment?
A)ex-rights date
B)ex-dividend date
C)date of record
D)date of payment
E)declaration date

Accepted Answer

The date of record is the date when a company determines who its shareholders are for the purpose of distributing dividends. Only shareholders listed on this date will receive the dividend payment, regardless of when they bought or sold their shares. The ex-dividend date is the date on and after which a security trades without its dividend. The declaration date is the date when the company publicly announces its intention to pay a dividend. The ex-rights date is the date on and after which a security trades without the right to participate in a new issue. The date of payment is the date on which the dividend payment is made to eligible shareholders.

Question 15

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?
A)decision date
B)date-of-record
C)declaration date
D)payment date
E)ex-dividend date

Accepted Answer

The declaration date is the date on which the board of directors formally announces that a dividend will be paid. In this scenario, the board of directors passed a resolution to pay a dividend, making today the declaration date. The other dates listed are as follows: decision date (not a financial term), date-of-record (the date by which a shareholder must own the stock to be eligible to receive the dividend), payment date (the date on which the dividend is actually paid), and ex-dividend date (the first day that the stock trades without the dividend; usually two business days before the date-of-record).

Question 16

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?
A)information content effect
B)clientele effect
C)efficient markets hypothesis
D)distribution effect
E)market reaction effect

Accepted Answer

The fact that most shareholders of Pierson Enterprises have similar characteristics (being individuals and entities seeking regular cash income and paying low taxes) is referred to as the clientele effect. This term describes the phenomenon of certain types of investors being attracted to certain types of stocks based on their investment objectives and tax situations.

Question 17

A reverse stock split is defined as:
A)an increase in the number of shares outstanding that does not affect owners' equity.
B)a firm buying back existing shares of its stock on the open market.
C)a firm selling new shares of stock on the open market.
D)a decrease in the number of shares outstanding that does not affect owners' equity.
E)a decrease in both the number of shares outstanding and the price per share.

Accepted Answer

A reverse stock split is when a company reduces the number of outstanding shares by combining multiple shares into one. This results in a decrease in the number of shares outstanding without affecting the total value of owners' equity.

Question 18

A $0.60 quarterly cash payment paid by T.L.Jones & Co.to its shareholders in the normal course of business is called a:
A)repurchase.
B)liquidating dividend.
C)regular cash dividend.
D)special dividend.
E)extra cash dividend.

Accepted Answer

The payment is a regular cash dividend, paid on a quarterly basis. Repurchase refers to a company buying back its own shares. Liquidating dividend is paid when a company is closing down or liquidating. Special dividend and extra cash dividend are paid in addition to regular dividends and are not part of the normal course of business.

Question 19

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?
A)perfect foresight model
B)personalization
C)recapitalization
D)offsetting leverage
E)homemade dividend policy

Accepted Answer

This refers to the concept of using personal investment decisions to create an alternative dividend policy, allowing shareholders to customize their own income stream. This is known as the homemade dividend policy and provides a way for investors to effectively undo a firm's dividend policy by reinvesting dividends or selling shares to create their desired income stream. The other options, such as perfect foresight model, recapitalization, and offsetting leverage, do not relate to the ability of shareholders to create an alternative dividend policy.

Question 20

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?
A)stock dividend
B)stock split
C)stock repurchase
D)stock recap
E)stock repeal

Accepted Answer

The process of buying a company's own shares of outstanding common stock is called a stock repurchase or share buyback. This allows the company to invest excess cash and reduce the number of outstanding shares, which can increase the value of the remaining shares for shareholders. Stock dividends and stock splits involve distributing more shares to current shareholders, while stock recapitalization and stock repeal are not commonly-used terms in finance.

Quiz 17: Dividends and Payout Policy

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

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

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:

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?

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?

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

What is the information content effect?

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?

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?

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

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?

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.

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

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?

A reverse stock split is defined as:

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

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?

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?