Question 1

Which of the following statements is false?

Accepted Answer

This statement is false. Retaining excess cash may result in tax liability for investors, which could reduce the after-tax return on investment. Therefore, after adjusting for investor taxes, there may not be a significant tax advantage for the firm to retain excess cash.

Question 2

Use the information for the question(s) below.
Consider the following tax rates:
  *The current tax rates are set to expire in 2008 unless Congress extends them. The tax rates shown are for financial assets held for one year. For assets held less than one year, capital gains are taxed at the ordinary income tax rate (currently 35% for the highest bracket); the same is true for dividends if the assets are held for less than 61 days.
-The effective dividend tax rate for a one-year individual investor in 1999 is closest to:

Accepted Answer

C) τ_d = 40%, τ_g = 20% (one year) 11ea7e5a_6ed4_12aa_9a0a_4d03dfd04f90_TB1623_11 = 11ea7e5a_6ed4_39bb_9a0a_69c1844cca89_TB1623_11 = 11ea7e5a_6ed4_39bc_9a0a_f3d0c2cb0093_TB1623_11 = .25

Question 3

Which of the following statements is false?

Accepted Answer

A firm does not need to balance the tax costs of holding cash with the potential benefits of having to raise external funds in the future; rather, it balances the opportunity cost of holding cash against the benefits of liquidity.

Question 4

Use the information for the question(s) below.
Consider the following tax rates:
  *The current tax rates are set to expire in 2008 unless Congress extends them. The tax rates shown are for financial assets held for one year. For assets held less than one year, capital gains are taxed at the ordinary income tax rate (currently 35% for the highest bracket); the same is true for dividends if the assets are held for less than 61 days.
-The effective dividend tax rate for a one-year individual investor in 2006 is closest to:

Accepted Answer

D) τ_d = 15%, τ_g = 15% (one year) 11ea7e5a_6ed3_9d71_9a0a_f5bcaccb89f7_TB1623_11 = 11ea7e5a_6ed3_9d72_9a0a_03b480974db7_TB1623_11 = 11ea7e5a_6ed3_9d73_9a0a_5374b21a9e1e_TB1623_11 = 0

Question 5

In Canada,stocks held by individual investors in a registered retirement savings plan (RRSP),registered retirement income fund (RRIF),or tax-free savings account (TFSA)are ________.

Accepted Answer

Stocks held in an RRSP, RRIF or TFSA are not subject to taxes on dividends or capital gains. This is because these accounts are designed to encourage Canadians to save for retirement or other purposes and provide tax benefits to encourage investment growth.

Question 6

A Canadian investor who holds her shares for a long time period and then plans to donate her shares to a Canadian charity will not have to pay any ________ and the full amount of the donation will be eligible for a charitable tax credit.

Accepted Answer

When an investor donates shares to a Canadian charity, they are exempt from paying any capital gains tax. Additionally, the full amount of the donation is eligible for a charitable tax credit.

Question 7

Consider the following equation: P_retain = P_cum × The term τ_i in this equation represents

Accepted Answer

The term τ_i in the equation refers to the investor's tax rate on interest income. This is because it is multiplied by the term representing the retained portion of the dividends paid out by the corporation to the investor, indicating that it relates to the tax implications of interest income received.

Question 8

Once the firm has already taken all positive-NPV projects,any additional projects it takes on are ________ investments.

Accepted Answer

Once a firm has taken all positive-NPV (Net Present Value) projects, any additional projects would either have a NPV of zero, meaning they break even, or a negative NPV, indicating a loss. Positive-NPV projects are preferred because they add value to the firm.

Question 9

Use the information for the question(s) below.
Consider the following tax rates:
  *The current tax rates are set to expire in 2008 unless Congress extends them. The tax rates shown are for financial assets held for one year. For assets held less than one year, capital gains are taxed at the ordinary income tax rate (currently 35% for the highest bracket); the same is true for dividends if the assets are held for less than 61 days.
-The effective dividend tax rate for a buy and hold individual investor in 1999 is closest to:

Accepted Answer

D) τ_d = 40%, τ_g = 0% (buy and hold) 11ea7e5a_6ed3_eb97_9a0a_05789b0d1d28_TB1623_11 = 11ea7e5a_6ed3_eb98_9a0a_51898493b575_TB1623_11 = 11ea7e5a_6ed4_12a9_9a0a_cd528d806008_TB1623_11 = .40

Question 10

Paying out excess cash through dividends or share repurchases can ________ the stock price by ________ managers' ability and temptation to waste resources.

Accepted Answer

Paying out excess cash through dividends or share repurchases can boost the stock price by reducing managers' ability and temptation to waste resources on unprofitable projects, thus signaling efficient use of capital to investors.

Question 11

Consider the following equation: P_retain = P_cum × The term P_retain in this equation represents

Accepted Answer

P_retain represents the price of the stock if it retains and invests the cash, which is calculated by multiplying the cumulative price by the factor given by 11ea7e5a_6ed5_724e_9a0a_0f8e3fb78588_TB1623_11. This equation is used in financial analysis to estimate the impact of retaining or reinvesting earnings on the value of a firm's stock.

Question 12

Use the information for the question(s) below.
Consider the following tax rates:
  *The current tax rates are set to expire in 2008 unless Congress extends them. The tax rates shown are for financial assets held for one year. For assets held less than one year, capital gains are taxed at the ordinary income tax rate (currently 35% for the highest bracket); the same is true for dividends if the assets are held for less than 61 days.
-The effective dividend tax rate for a pension fund in 1999 is closest to:

Accepted Answer

C) τ_d = 0%, τ_g = 0% (pension fund) 11ea7e5a_6ed4_39bd_9a0a_5f1af4ba86a1_TB1623_11 = 11ea7e5a_6ed4_60ce_9a0a_2556c98e53d2_TB1623_11 = 11ea7e5a_6ed4_60cf_9a0a_b50be561449d_TB1623_11 = 0

Question 13

Consider the following equation: P_retain = P_cum × The term τ_c in this equation represents

Accepted Answer

The answer of Consider the following equation: P_retain = P_cum...

Question 14

Retaining cash can ________ the costs of raising capital in the future,but it can also ________ taxes and agency costs.

Accepted Answer

Retaining cash can reduce the costs of raising capital in the future because a company with more cash on hand may not need to seek external financing as often, thus saving on costs associated with issuing new equity or debt. However, holding onto cash can also increase taxes, as profits retained and not distributed as dividends may still be subject to corporate income taxes. Additionally, retaining cash can lead to higher agency costs, which are costs associated with conflicts of interest between management and shareholders, as excess cash might lead to inefficient spending or investments that do not maximize shareholder value.

Question 15

Canadian investors in U.S.stocks and U.S.investors in Canadian stocks are subject to a ________ withholding tax for ________ they receive.

Accepted Answer

Canadian investors in U.S. stocks and U.S. investors in Canadian stocks are subject to a 15% withholding tax for dividends they receive.

Question 16

Use the information for the question(s) below.
Consider the following tax rates:
  *The current tax rates are set to expire in 2008 unless Congress extends them. The tax rates shown are for financial assets held for one year. For assets held less than one year, capital gains are taxed at the ordinary income tax rate (currently 35% for the highest bracket); the same is true for dividends if the assets are held for less than 61 days.
-The effective dividend tax rate for a pension fund in 2006 is closest to:

Accepted Answer

B) τ_d = 0%, τ_g = 0% (pension fund) 11ea7e5a_6ed3_c484_9a0a_f73a53f6f14a_TB1623_11 = 11ea7e5a_6ed3_c485_9a0a_310b7e03bff0_TB1623_11 = 11ea7e5a_6ed3_c486_9a0a_c70fbc1273c7_TB1623_11 = 0

Question 17

Which of the following formulas is incorrect?

Accepted Answer

A) τ*_retain = 11ea7e5a_6ed5_242c_9a0a_0f84d3cc94ff_TB1623_11

Question 18

Using the available tax information for 2002,calculate the effective dividend tax rate for a:
(1)one-year individual investor
(2)buy and hold individual investor
(3)pension fund

Accepted Answer

The answer of Using the available tax information for 2002,calculate...

Question 19

Use the information for the question(s) below.
Consider the following tax rates:
  *The current tax rates are set to expire in 2008 unless Congress extends them. The tax rates shown are for financial assets held for one year. For assets held less than one year, capital gains are taxed at the ordinary income tax rate (currently 35% for the highest bracket); the same is true for dividends if the assets are held for less than 61 days.
-The effective dividend tax rate for a buy and hold individual investor in 2006 is closest to:

Accepted Answer

C) τ_d = 15%, τ_g = 0% (Buy and Hold) 11ea7e5a_6ed3_765e_9a0a_d95246935a7b_TB1623_11 = 11ea7e5a_6ed3_765f_9a0a_7b7d08cf4177_TB1623_11 = 11ea7e5a_6ed3_7660_9a0a_1b4afafa61e6_TB1623_11 = .15

Question 20

Which of the following statements is false?

Accepted Answer

This statement is false. Tax-free investors and corporations have a preference for stocks that pay high dividends because they do not have to pay taxes on the dividends received. This is in contrast to individuals in the highest tax brackets, who may prefer stocks that pay low or no dividends to avoid paying high dividend taxes.

Quiz 20: Payout Policy

Which of the following statements is false?

Which of the following statements is false?

In Canada,stocks held by individual investors in a registered retirement savings plan (RRSP) ,registered retirement income fund (RRIF) ,or tax-free savings account (TFSA) are ________.

A Canadian investor who holds her shares for a long time period and then plans to donate her shares to a Canadian charity will not have to pay any ________ and the full amount of the donation will be eligible for a charitable tax credit.

Consider the following equation: P_retain = P_cum × The term τ_i in this equation represents

Once the firm has already taken all positive-NPV projects,any additional projects it takes on are ________ investments.

Paying out excess cash through dividends or share repurchases can the stock price by managers' ability and temptation to waste resources.

Consider the following equation: P_retain = P_cum × The term P_retain in this equation represents

Consider the following equation: P_retain = P_cum × The term τ_c in this equation represents

Retaining cash can the costs of raising capital in the future,but it can also taxes and agency costs.

Canadian investors in U.S.stocks and U.S.investors in Canadian stocks are subject to a withholding tax for they receive.

Which of the following formulas is incorrect?

Using the available tax information for 2002,calculate the effective dividend tax rate for a: (1)one-year individual investor (2)buy and hold individual investor (3)pension fund

Which of the following statements is false?

Quiz 20: Payout Policy

Which of the following statements is false?

Which of the following statements is false?

In Canada,stocks held by individual investors in a registered retirement savings plan (RRSP) ,registered retirement income fund (RRIF) ,or tax-free savings account (TFSA) are ________.

A Canadian investor who holds her shares for a long time period and then plans to donate her shares to a Canadian charity will not have to pay any ________ and the full amount of the donation will be eligible for a charitable tax credit.

Consider the following equation: Pretain = Pcum × The term τi in this equation represents

Once the firm has already taken all positive-NPV projects,any additional projects it takes on are ________ investments.

Paying out excess cash through dividends or share repurchases can ________ the stock price by ________ managers' ability and temptation to waste resources.

Consider the following equation: Pretain = Pcum × The term Pretain in this equation represents

Consider the following equation: Pretain = Pcum × The term τc in this equation represents

Retaining cash can ________ the costs of raising capital in the future,but it can also ________ taxes and agency costs.

Canadian investors in U.S.stocks and U.S.investors in Canadian stocks are subject to a ________ withholding tax for ________ they receive.

Which of the following formulas is incorrect?

Using the available tax information for 2002,calculate the effective dividend tax rate for a: (1)one-year individual investor (2)buy and hold individual investor (3)pension fund

Which of the following statements is false?

Consider the following equation: P_retain = P_cum × The term τ_i in this equation represents

Paying out excess cash through dividends or share repurchases can the stock price by managers' ability and temptation to waste resources.

Consider the following equation: P_retain = P_cum × The term P_retain in this equation represents

Consider the following equation: P_retain = P_cum × The term τ_c in this equation represents

Retaining cash can the costs of raising capital in the future,but it can also taxes and agency costs.

Canadian investors in U.S.stocks and U.S.investors in Canadian stocks are subject to a withholding tax for they receive.