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Fundamentals of Corporate Finance, 4/c/e

Fundamentals of Corporate Finance, 4/e

Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Bradford D. Jordan, University of Kentucky
Gordon S. Roberts, York University

Dividends and Dividend Policy

Quick Quiz 1

After taking this quiz, click 'Submit Answers' for graded results. You'll also have the option of emailing the results to your instructor and/or yourself.


1	All else the same, which of the following is NOT an accurate statement about stock splits and stock dividends? (All of the statements refer to book, and not market, values.)
		A)	Earnings per share will likely decrease only with the stock dividend.
		B)	Total owners' equity will not change with either a stock split or a stock dividend.
		C)	The primary effect of either is to increase the number of shares outstanding.
		D)	Under TSE rules, the maximum amount of a stock dividend is 25%
		E)	Accounting treatment is different for stock dividends and stock splits.


2	Which of the following is NOT accurate regarding corporate dividends?
		A)	Once declared, a dividend becomes a liability of the firm.
		B)	Dividend stability is usually viewed as a desirable objective.
		C)	The existence of an information content effect tends to make it difficult to determine the effects of dividend policy.
		D)	In the absence of a more favorable tax rate on cash dividends, investors will prefer stocks with relatively low dividend payout rates.
		E)	The price of a share of stock will tend to rise on the ex-dividend day.


3	Which of the following cannot be used to enhance dividend stability?
		A)	Share repurchases
		B)	The implementation of a residual dividend policy.
		C)	Payment of an extra dividend.
		D)	Payment of a special dividend
		E)	Establishment of a target dividend payout ratio


4	Which of the following is NOT an appropriate way for a firm to deal with excess cash?
		A)	positive NPV project.
		B)	regular cash dividend
		C)	stock dividend
		D)	stock repurchase
		E)	special dividend


5	BDJ, Inc. has 31,000 shares of stock outstanding with a market price of $15 per share. If net income for the year is $155,000 and the dividend per share is $2.00, what is the payout ratio for BDJ, Inc.?
		A)	40.0%
		B)	21.6%
		C)	78.4%
		D)	60.0%
		E)	83.2%


6	The board of directors of DDT Inc. has declared a dividend of $0.75 per share payable on Monday, January 28 to shareholders of record as of Monday, January 14. Under TSE rules, if you bought 500 shares of DDT stock on Friday, January 11 for $7.50 per share, how much will you receive in dividends?
		A)	$375.00
		B)	$37.50
		C)	$1.50
		D)	$55.00
		E)	$0.00


7	DRK, Inc. currently has 400,000 shares of stock outstanding, with a market price of $20. The firm would prefer to have its stock trade at a value between $30 and $35 per share. Of the following choices, which would allow the firm to achieve its objective?
		A)	A 2-for-1 stock split
		B)	A 50% stock dividend
		C)	A 2-for-3 reverse stock split
		D)	A 1-for-2 reverse stock split
		E)	A $2 per share cash dividend


8	You own stock in a firm that has 1.25 million shares outstanding. The current stock price is $13.50 per share. If the company issues a 10% stock dividend, what would you expect the stock price to be after the dividend is paid?
		A)	$12.82
		B)	$12.27
		C)	$13.49
		D)	$13.30
		E)	$13.71


9	The desirability of owning a high-dividend payout stock would increase if:
		A)	A tax exemption on the first $100 of dividend income was created.
		B)	A reduced tax rate on capital gains income was created.
		C)	A tax exemption on the first $100 of capital gains income was created.
		D)	The brokerage commissions on purchases and sales of shares were reduced.
		E)	The number of positive NPV projects available to the firm increased.


10	The market's reaction to the announcement of a change in the firm's dividend payout is the:
		A)	M&M Proposition I.
		B)	Clientele effect.
		C)	Efficient Markets Hypothesis.
		D)	Information content effect.
		E)	M&M Proposition II.

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