Question 1

Lester's Dry Goods paid $1.10 per share in dividends last year.The company currently has excess cash and would like to distribute $0.40 a share to its shareholders.However,the company is concerned about increasing the dividend by that amount as it will not be able to afford any increase in the future and doesn't want to lower the dividend once it has been raised.Which one of the following is probably the best suggestion for distributing the $0.40 per share?

Accepted Answer

The answer of Lester's Dry Goods paid $1.10 per share...

Question 2

Which one of the following statements is correct?

Accepted Answer

Dividend policy is the time pattern of dividend payout.

Question 3

Which two of the following tend to limit the amount of dividends that can be paid by a leveraged corporation?
I.current tax laws
II.corporate tax rates
III.bond trust deed covenant
IV.laws pertaining to retained earnings

Accepted Answer

Corporate tax rates and current tax laws do not directly limit the amount of dividends that can be paid by a leveraged corporation. However, bond trust deed covenants and laws pertaining to retained earnings typically restrict the amount of dividends that can be paid to shareholders. Therefore, the correct answer is III and IV only.

Question 4

Which one of the following events must occur before a firm can offer a liquidating dividend?

Accepted Answer

A firm must sell its assets to generate the cash needed to pay a liquidating dividend.

Question 5

The clientele effect states that investors fall into various groups because of differences in their preferences for which one of the following?

Accepted Answer

The clientele effect suggests that investors are attracted to companies that have dividend policies matching their preferences, meaning they prefer certain dividend payout patterns.

Question 6

Mercury Homes just declared a 4-for-3 stock split.Which of the following occurred as a result of this split?
I.number of shares outstanding increased by 1/3
II.number of shares outstanding decreased by 1/4
III.price per share increased by 1/3
IV.price per share decreased by 1/4

Accepted Answer

In a 4-for-3 stock split, the number of shares increases by 1/3, and the price per share decreases by 1/4.

Question 7

Which one of the following is a payment of either cash or shares that is paid out of earnings to a firm's shareholders?

Accepted Answer

A dividend is a payment made by a company to its shareholders, usually in the form of cash or shares, that is paid out of its earnings. Retained earnings refer to the portion of a company's profits that are not distributed to shareholders but kept for reinvestment or other purposes. Stock repurchase, also known as share buyback, is when a company buys back its own shares from the market. Interest refers to the payment made by a borrower to a lender for the use of money. Distribution is a general term that can refer to various types of payments or products that are distributed to customers or shareholders, and is not necessarily related to earnings or profits.

Question 8

During the past year,ABC stock has sold for as little as $19 a share and a much as $33 a share.Which one of the following terms applies to these prices?

Accepted Answer

The term that applies to these prices is trading range. A trading range is the range between the high and low prices of a stock or any other asset during a particular period, usually a day or a year. Therefore, in this scenario, the trading range of ABC stock is between $19 and $33 per share. None of the other terms (price dividers, benchmark values, split range, and price splits) accurately describe the range of prices that ABC stock has gone through in the past year.

Question 9

Kelso's is considering spending $80 000 on either a share repurchase or an extra cash dividend.Which one of the following values will be the same whether the firm pays a dividend or repurchases shares? Assume there are no taxes or market imperfections.

Accepted Answer

The price-earnings ratio will remain the same because both actions (dividend payment or share repurchase) do not affect the earnings or the market price per share in a perfect market without taxes or imperfections.

Question 10

The Smart Guy Rental Company has 750 shares outstanding at a market price of $12 a share.The earnings per share are $1.20.The firm has current assets of $4000,net fixed assets of $6000,and total liabilities of $7000.Today,Smart Guy's is paying a cash dividend of $0.50 a share.Ignore taxes.After the dividend,the firm's:

Accepted Answer

The answer of The Smart Guy Rental Company has 750...

Question 11

Which one of the following increases the number of shares outstanding but does not increase the value of owner's equity?

Accepted Answer

A share split involves increasing the number of outstanding shares while decreasing the share price proportionally. This does not affect the value of owner's equity because the proportion of ownership remains the same, only the number of shares has increased. While each individual share may be worth less after a split, the total value of the shares remains the same. Therefore, a share split does not increase the value of owner's equity but only increases the number of shares outstanding.

Question 12

Which one of the following best defines a regular cash dividend?

Accepted Answer

A regular cash dividend is a periodic (usually quarterly) payment of cash by a firm to its shareholders as part of the firm's normal operations. It is not a one-time payment, nor is it necessarily related to the sale of a portion of the firm's operations. It is also specific to cash payments made by the firm to its owners, not just any payment by the firm to its owners.

Question 13

On which one of the following dates is the determination made as to which shareholders will receive a dividend payment?

Accepted Answer

The date of record is the date on which the company determines which shareholders will receive a dividend payment. This is usually a few days after the ex-dividend date, which is the date on which the stock begins trading without the dividend. The declaration date is when the company announces that a dividend will be paid, the payment date is when the dividend is actually paid, and the public announcement date is simply when the company publicly announces the dividend.

Question 14

Which one of the following factors favours a high dividend payout?

Accepted Answer

Corporate investors often prefer high dividend payouts because they may benefit from tax advantages on dividend income, such as the dividends received deduction, which allows them to exclude a portion of the dividends received from their taxable income.

Question 15

Which one of the following would tend to favour a low dividend payout?

Accepted Answer

High flotation costs for equity issues can make it expensive for a company to raise new equity, which may lead the company to retain earnings instead of paying out dividends.

Question 16

On which one of the following dates are dividends direct deposited to shareholders bank accounts?

Accepted Answer

Payment date is the date on which dividends are actually paid out to the shareholders, which includes the direct deposit of dividends into their bank accounts. Ex-dividend date is the date on which the stock starts trading without the dividend, declaration date is the date on which the company's board announces the dividend payout, and date of record is the date on which shareholders must own the stock in order to be eligible for the dividend. Public announcement date is when the information about the dividend is officially released to the public.

Question 17

Which one of the following is an example of a liquidating dividend?

Accepted Answer

A liquidating dividend is a payment made to shareholders when a company is liquidating or selling off its assets. In this case, Valley Feed Mills sold a facility and is distributing the proceeds to its shareholders. This fits the definition of a liquidating dividend. The other choices are not examples of a liquidating dividend.

Question 18

Which one of the following reduces the number of shares outstanding but does not change a firm's total equity?

Accepted Answer

A reverse split involves reducing the number of shares outstanding by combining them into fewer shares, which increases the share price but does not change the total equity of the firm. Therefore, this option meets the criteria of reducing the number of shares outstanding without changing the total equity. The other options either involve distributing assets or reducing the total equity of the firm.

Question 19

Which one of the following will result from a stock repurchase?

Accepted Answer

The answer of Which one of the following will result...

Question 20

Assume that clienteles exist.Given this assumption,which one of the following statements is correct?

Accepted Answer

If clienteles exist, dividend policy is not irrelevant. However, different clienteles may prefer different levels of dividend payouts. As long as each clientele group is currently satisfied, the dividend policy is considered to be optimal for that group. Therefore, firms may vary their dividend payout policy to cater to different clienteles. However, this does not necessarily mean that all firms will adopt a high or low dividend payout policy, making options A and E incorrect. Option B is also incorrect as the relationship between dividend payouts and share prices is not straightforward. Option C is also incorrect as even if some investors ignore dividends, others may still consider them important.

Quiz 14: Dividends and Dividend Policy