Finance Test 3 (Chapter 13)

When common stock is repurchased and retired, the underlying motive is to ________.A) delay taxesB) boost the stock’s dividendsC) distribute the excess cash to the ownersD) reduce the retained earnings balance C) distribute the excess cash to the owners
Which of the following type of firms are most likely to payout cash dividends?A) rapidly growing firmsB) firms encouraging innovationC) large mature firmsD) firms expanding their operations C) large mature firms
At a firm’s quarterly dividend meeting held April 9, the directors declared a $0.50 per share cash dividend for the holders of record on Monday, May 1. The firm’s stock will sell ex dividends on ________.A) April 28B) May 5C) April 29D) April 27 D) April 27
Ex dividend is ________.A) a period beginning 2 business days prior to the date of record, during which a stock is sold without the right to receive the current dividendB) the date on which all investors whose names are recorded as stockholders receive a declared dividend at a specified future timeC) a period beginning 7 business days prior to the date of record, during which a stock is sold without the right to receive the current dividendD) the actual date on which a firm mails the dividend payment to the holders of record A) a period beginning 2 business days prior to the date of record, during which a stock is sold without the right to receive the current dividend
The payment of cash dividends to corporate stockholders is decided by the ________.A) creditorsB) stockholdersC) SECD) board of directors D) board of directors
In a(n) ________, a firm specifies a range of prices that it is willing to repurchase shares and the quantity of shares that it desires.A) Dutch auctionB) tender offerC) American optionD) self-tender offer A) Dutch auction
In a(n) ________, a firm announces the price it is willing to pay to buy back shares and the quantity of shares it wishes to repurchase.A) Dutch auctionB) tender offerC) American optionD) European auction B) tender offer
Tender offer repurchase is a repurchase program in which a firm ________.A) offers to repurchase a fixed number of shares, usually at a discount relative to the market valueB) offers to repurchase a fixed number of shares, usually at a premium relative to the market valueC) offers to repurchase a fixed number of shares, usually at par relative to the market valueD) has a right to repurchase a fixed number of shares at a premium relative to the market value B) offers to repurchase a fixed number of shares, usually at a premium relative to the market value
Which of the following is a reason for a firm for repurchasing its shares?A) to diminish the shareholder value by increasing the number of shares outstanding and thereby raising earnings per shareB) to help encourage a friendly takeover by increasing the number of publicly traded sharesC) to make shares available for stock option plansD) to make shares available for cash dividends C) to make shares available for stock option plans
The net effect of a stock repurchase is ________.A) similar to an interest paymentB) similar to a cash dividendC) similar to a stock splitD) similar to a reverse stock split B) similar to a cash dividend
Which of the following is true of a dividend payout?A) When a firm announces that it will increase its dividend, the share price usually decreases on that news.B) Dividend payments send a positive signal to investors in the marketplace that management believes that the stock is overvalued.C) When a firm pays out dividends the share price will fall.D) Dividend payouts have no impact on the share price of a stock in an efficient market. C) When a firm pays out dividends the share price will fall.
Which of the following methods can be utilized by a firm when it wants to purchase outstanding shares of common stock?A) a purchase of stock through private placementB) a tender offer at varying pricesC) a tender offer at a specified priceD) an European auction plan C) a tender offer at a specified price
Repurchase of stock ________ the earnings per share and ________ the market price of stock.A) increases; increasesB) decreases; decreasesC) increases; decreasesD) decreases; increases A) increases; increases
In a Dutch auction, ________.A) a firm offers to repurchase a fixed number of shares, at a discountB) a firm offers to repurchase a fixed number of shares, at a premiumC) a firm specifies a range of prices at which it is willing to repurchase shares and the quantity of shares that it desiresD) a firm enables stockholders to use dividends received on the firm’s stock to acquire additional shares C) a firm specifies a range of prices at which it is willing to repurchase shares and the quantity of shares that it desires
Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, the maximum rate of taxation on dividends received by shareholders was set at ________.A) 18%B) 20%C) 25%D) 15% D) 15%
A dividend reinvestment plan enables stockholders to ________.A) reinvest the dividends in money market instruments which are risk freeB) reinvest all dividends in the firm with no accompanying increase in equityC) acquire additional dividends through redemption of stockD) acquire shares at little or no transaction costs D) acquire shares at little or no transaction costs
At the quarterly meeting of Tangshan Mining Corporation, held on September 10th, the directors declared a $1.00 per share dividend for the firm’s 100,000 shares of common stock outstanding. The net effect of declaring and paying this dividend would be to ________.A) decrease total assets by $100,000 and increase stockholders equity by $100,000B) decrease total assets by $100,000 and decrease stockholders equity by $100,000C) increase total assets by $100,000 and increase stockholders equity by $100,000D) increase total assets by $100,000 and decrease stockholders equity by $100,000 B) decrease total assets by $100,000 and decrease stockholders equity by $100,000
Dividend payment policy is a form of ________.A) capital budgeting policyB) financing policyC) working capital policyD) dividend reinvestment policy B) financing policy
The residual theory of dividends suggests that ________.A) different payout policies attract different types of investors but still do not change the value of a firmB) dividends are irrelevant in determining the value of a firmC) as long as a firm’s equity need exceeds the amount of retained earnings, no cash dividend is paidD) the payout policies of different firms have no impact on the taxes that investors have to pay C) as long as a firm’s equity need exceeds the amount of retained earnings, no cash dividend is paid
According to the residual theory of dividends, if a firm’s equity need is less than the amount of retained earnings, the firm would ________.A) borrow to pay the cash dividendB) declare a dividend equal to the remaining balanceC) pay no cash dividendsD) pay dividends higher than the remaining balance to gain credibility B) declare a dividend equal to the remaining balance
According to the residual theory of dividends, if a firm’s equity need exceeds the amount of retained earnings, the firm would ________.A) borrow to pay the cash dividendB) sell additional stock to pay the cash dividendC) pay no cash dividendsD) pay less dividends C) pay no cash dividends
The clientele effect refers to ________.A) the relevance of dividend policy on a firm’s share valueB) a firm’s ability to attract stockholders whose dividend preferences are similar to the firm’s dividend policyC) the informational content of dividends that helps in predicting the future earnings and growth of a firmD) the “bird-in-the-hand” argument B) a firm’s ability to attract stockholders whose dividend preferences are similar to the firm’s dividend policy
Modigliani and Miller argue that when a firm has no acceptable investment opportunities, it should ________.A) preserve the funds and not declare dividendsB) distribute the surplus funds to the ownersC) lower its cost of capitalD) retain the funds until an acceptable project arises B) distribute the surplus funds to the owners
Modigliani and Miller suggest that the value of a firm is not affected by the firm’s dividend policy, due to ________.A) the relevance of dividendsB) the clientele effectC) the informational contentD) the optimal capital structure B) the clientele effect
Gordon and Lintner, recognizing that dividends affect stock prices, suggest that positive effects of dividend increases are attributable ________.A) directly to the dividend policyB) directly to the optimal capital structureC) not to the informational content but to the consistency in the payment of dividendsD) to the informational content of the dividends with respect to future earnings D) to the informational content of the dividends with respect to future earnings
Gordon’s “bird-in-the-hand” argument suggests that ________.A) dividends are irrelevantB) firms should have a 100 percent payout policyC) shareholders are risk averse and attach less risk to current dividendsD) the market value of a firm is unaffected by dividend policy C) shareholders are risk averse and attach less risk to current dividends
The information content of dividends refers to ________.A) the nonpayment of dividends by corporationsB) dividend changes as indicators of a firm’s futureC) a stable and continuous dividendD) a study of firm’s history of dividend payments B) dividend changes as indicators of a firm’s future
Which of the following is true of arguments for dividend relevance?A) A firm’s value is determined solely by the earning power and risk of its assets.B) Investors are generally risk averse and attach less risk to current dividends than future dividends or capital gains.C) The value of a firm is unaffected as it functions in a perfect market.D) A clientele effect exists which causes a firm’s shareholders to receive the dividends that they expect B) Investors are generally risk averse and attach less risk to current dividends than future dividends or capital gains.
Firms are usually prohibited by state law from distributing ________.A) retained earnings as dividendsB) paid-in capital in excess of par as dividendsC) dividends in a year the firm has a net lossD) preferred dividends B) paid-in capital in excess of par as dividends
Tangshan Mining has common stock at par of $200,000, paid-in capital in excess of par of $400,000, and retained earnings of $280,000. In states where the firm’s legal capital is defined as the par value of common stock, the firm could pay out ________ in cash dividends without impairing its capital.A) $200,000B) $680,000C) $600,000D) $880,000 B) $680,000
Tangshan Mining has common stock at par of $200,000, paid-in capital in excess of par of $400,000, and retained earnings of $280,000. In states where the firm’s legal capital is defined as the total of par value and paid-in capital in excess of par, the firm could pay out ________ in cash dividends without impairing its capital.A) $280,000B) $400,000C) $480,000D) $600,000 A) $280,000
Legal capital refers to ________.A) a legal constraint imposed by lenders of a firm to maintain a certain level of debt to equity ratio and capitalB) capital impairment restrictions are generally established to provide a sufficient equity base to protect creditors’ claimsC) the capital which is typically measured by the retained earningsD) the capital which is typically measured by net income B) capital impairment restrictions are generally established to provide a sufficient equity base to protect creditors’ claims
A firm has the following stockholders’ equity balances:Common stock at Par: $400,000 Paid-in capital in excess of par: 1,200,000retained earnings: 2,000,000In states where the firm’s legal capital is defined as the par value of its common stock, the maximum cash dividend the firm could pay is ________.A) $3,600,000B) $400,000C) $3,200,000D) $1,600,000 C) $3,200,000
An excess earnings accumulation tax is levied when ________.A) shareholders receive dividends which exceed a firm’s earningsB) firms do not pay dividends in order to delay the owners’ tax liabilityC) firms do not pay dividends to reinvest in the firmD) earnings exceed accumulated dividends over the years B) firms do not pay dividends in order to delay the owners’ tax liability
The capital impairment restrictions are established to ________.A) reduce dividends equal to or below the current earnings levelB) constrain the firm to paying dividends which do not require additional borrowingC) provide sufficient safety to equity holdersD) provide a sufficient equity base to protect creditors’ claims D) provide a sufficient equity base to protect creditors’ claims
With regard to dividend payments, which of the following is included in the contractual constraints imposed by loan agreements?A) limiting the payment to suppliersB) limiting the percentage of earnings that can be paid out in dividendsC) sustaining a constant dividend payout ratioD) making fixed payment to equityholders B) limiting the percentage of earnings that can be paid out in dividends
Which of the following is considered in designing a dividend policy that is favorable to wealthy owners?A) the tax status of the firm’s ownersB) the political risk of the firmC) the liability of the firm’s ownersD) the reinvestment risk of the firm A) the tax status of the firm’s owners
A firm that has a large percentage of ________ investors may pay out a lower percentage of its earnings as dividends.A) wealthyB) domesticC) middle-incomeD) international A) wealthy
According to ________, investors’ demands for dividends fluctuate over time.A) the catering theoryB) Modigliani and Miller theoryC) the residual theory of dividendsD) CAPM theory A) the catering theory
According to the catering theory, firms cater to the preferences of ________.A) investorsB) creditorsC) managersD) government A) investors
The dividend policy must be formulated considering two basic objectives, namely ________.A) delaying the tax liability of the stockholder and information contentB) maximizing shareholder wealth and maintaining liquidityC) maximizing shareholder wealth and providing for sufficient financingD) maintaining liquidity and minimizing the weighted average cost of capital C) maximizing shareholder wealth and providing for sufficient financing
A firm has current after-tax earnings of $1,000,000 and has declared a cash dividend of $400,000. The firm’s dividend payout ratio is ________.A) 2.5 percentB) 2.0 percentC) 4.0 percentD) 40 percent D) 40 percent
A firm’s dividend payout ratio is calculated by ________.A) dividing cash dividend per share by its earnings per shareB) dividing earnings per share by its cash dividend per shareC) dividing cash dividend per share by its net incomeD) dividing net income by its cash dividend per share A) dividing cash dividend per share by its earnings per share
A firm has had the following earnings history over the last five years:Year: Earnings per share:2015 $2.502014 2.002013 1.752012 1.252011 -1.00If the firm’s dividend policy was based on a constant payout ratio of 50 percent for all of the years with earnings over $1.50 per share and a zero payout otherwise, the annual dividends for 2012 and 2015 were ________.A) $0.50 and $1.25, respectivelyB) $0 and $2.00, respectivelyC) $0 and $1.25, respectivelyD) $0 and $0.88, respectively C) $0 and $1.25, respectively
Which type of dividend payment policy has the disadvantage that if a firm’s earnings drop or if a loss occurs in a given period, dividends may be low or nonexistent?A) constant-payout-ratio policyB) regular dividend policyC) low-regular-and-extra dividend policyD) stock dividend policy A) constant-payout-ratio policy
The problem with a constant-payout-ratio dividend policy from the shareholders’ perspective is that ________.A) it pays constant dividend irrespective of the earnings of a firm B) if the firm’s earnings drop, the dividends tend to be lowerC) even when earnings are low, the company must pay a fixed dividendD) there is no uniformity in this type of dividend policy B) if the firm’s earnings drop, the dividends tend to be lower
The problem with the regular dividend policy from a firm’s perspective is that ________.A) it regularly pays dividends which fluctuate with earningsB) if the firm’s earnings drop, the dividends may be lowC) even when earnings are low, the company must pay a fixed dividendD) it increases the shareholders’ uncertainty C) even when earnings are low, the company must pay a fixed dividend
When a firm pays a stated dollar dividend and adjusts the payment as earnings increase, its dividend policy can be called ________.A) a low-regular-and-extra dividend policyB) a regular dividend policyC) a target dividend-payout ratio policyD) a constant-payout-ratio dividend policy C) a target dividend-payout ratio policy
Which type of dividend payment policy has the advantage that if a firm’s earnings drop, dividends will still be maintained at a relatively constant level?A) constant-payout-ratio policyB) regular dividend policyC) low-regular-and-extra dividend policyD) target dividend policy B) regular dividend policy
A firm has had the following earnings history over the last five years:Year: Earnings per share:2015 $2.502014 2.002013 1.752012 1.252011 -1.00If the firm’s dividend policy is based on a $0.50 payout per share whenever it makes a positive earnings, increasing by $0.05 to previous year dividends per share whenever earnings exceed $1.50 per share, the annual dividends for 2014 and 2015 were ________.A) $0.50 and $0.60, respectivelyB) $0.50 and $0.55, respectivelyC) $0.55 and $0.65, respectivelyD) $0.60 and $0.65, respectively D) $0.60 and $0.65, respectively
At a firm’s quarterly dividend meeting held on December 5, the directors declared a $1.50 per share cash dividend to be paid to the holders of record on Monday, January 1. Before the dividend was declared, the firm’s accumulated retained earnings balance and cash balance were $1,280,000 and $30,000 respectively. The firm has 10,000 shares of common stock outstanding. On January 2, the cash, dividends payable, and retained earnings accounts had balances of ________.A) $15,000, $0, and $1,265,000, respectivelyB) $30,000, $15,000, and $1,280,000, respectivelyC) $30,000, $0, and $1,265,000, respectivelyD) $15,000, $0, and $1,280,000, respectively A) $15,000, $0, and $1,265,000, respectively
Year: Earnings per share:2015 $2.502014 2.002013 1.752012 1.252011 -1.00If the firm’s dividend policy was to pay $0.25 per share each period except when earnings exceed $1.50, an extra dividend equal to 50 percent of the earnings above $1.50 would be paid, the annual dividends for 2012 and 2015 were ________.A) $0.25 and $1.25, respectivelyB) $0.25 and $0.75, respectivelyC) $0 and $0.25, respectivelyD) $0.25 and $0.25, respectively B) $0.25 and $0.75, respectively
The advantage of using the extra dividend policy is that ________.A) a firm can avoid giving false hopes to shareholdersB) if a firm’s earnings drop, so does the dividend paymentC) the extra dividend may become a regular eventD) cyclical shifts in earnings may be avoided A) a firm can avoid giving false hopes to shareholders
An advantage of a ________ is that it avoids giving shareholders false hopes.A) constant-payout-ratio policyB) regular dividend policyC) low-regular-and-extra dividend policyD) target dividend policy C) low-regular-and-extra dividend policy
The shareholder receiving a stock dividend receives ________.A) a share of common stock of equal value to their existing shares of common stockB) cashC) additional shares of common stock and cashD) nothing of value D) nothing of value
Stock dividends are ________.A) taxable at a higher level than dividend taxesB) taxable at a lower level than dividend taxesC) non taxableD) are taxable only to the shareholders C) non taxable
Mr. R. owns 20,000 shares of ABC Corporation stock. The company is planning to issue a stock dividend. Before the dividend Mr. R. owned 10 percent of the outstanding stock, which had a market value of $200,000, or $10 per share. Upon receiving the 10 percent stock dividend the value of his shares is ________.A) $220,000B) $210,000C) $200,000D) $180,000 C) $200,000
Paying a stock dividend ________.A) decreases the retained earnings accountB) has no effect on the retained earnings accountC) increases the retained earnings accountD) reorganizes the income B) has no effect on the retained earnings account
Tangshan Mining has 100,000 shares outstanding and just declared a 20% stock dividend. Before the announcement, the firm’s shares were trading at $50.00 per share. After the stock dividend, the firm’s shares should trade at ________ per share.A) $42.00B) $41.67C) $46.33D) $50.00 B) $41.67
A ________ has an effect on a firm’s share price similar to that of a ________.A) stock repurchase; stock splitB) stock dividend; stock splitC) cash dividend; stock dividendD) cash dividend; stock split B) stock dividend; stock split
The purpose of a stock split is to ________.A) change a firm’s capital structureB) decrease the dividendC) enhance the trading activity of the stock by lowering the market priceD) increase the market price of a stock C) enhance the trading activity of the stock by lowering the market price
A stock split has ________.A) little effect on a firm’s capital structureB) no effect on a firm’s capital structureC) a measurable effect on a firm’s capital structureD) a detrimental effect on a firm’s capital structure B) no effect on a firm’s capital structure
The purpose of a reverse stock split is to ________.A) issue additional sharesB) increase the dividendC) increase the price of a stockD) decrease trading activity C) increase the price of a stock
The primary purpose of a stock split is to ________.A) issue additional sharesB) increase the dividendC) reduce the price of a stockD) reduce trading activity C) reduce the price of a stock
Tangshan Mining has 100,000 shares outstanding and just declared a 2-for-1 stock split. Before the announcement, the firm’s shares were trading at $50.00 per share. After the stock split, the firm’s shares should trade at ________ per share.A) $100.00B) $25.00C) $50.00D) $75.00 B) $25.00
Tangshan Mining has 100,000 shares outstanding and just declared a 3-for-2 stock split. Before the announcement, the firm’s shares were trading at $50.00 per share. After the stock split, the firm’s shares should trade at ________ per share.A) $33.33B) $66.67C) $75.00D) $100.00 A) $33.33

Leave a Reply

Your email address will not be published. Required fields are marked *