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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 2

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1	Which of the following is a possible motivation for a reverse stock split?
		A)	To decrease the stock price and, thereby, increase the stock's marketability.
		B)	To fall below the minimum listing requirements of a stock exchange.
		C)	To attract tax-exempt investors.
		D)	To force out minority shareholders.
		E)	To increase the transaction costs of shareholders.


2	Which of the following investors would likely prefer a firm with a high dividend payout rate? I. A corporate investor II. A tax-exempt investor III. An investor who does not need current income IV. An investor in a relatively high personal income tax bracket
		A)	III only
		B)	II and IV only
		C)	I and II only
		D)	III and IV only
		E)	I, II, III and IV


3	If a firm has excess cash and management believes the firm's shares are currently undervalued by market participants, the firm is a likely candidate for a __________.
		A)	liquidating dividend
		B)	stock repurchase
		C)	regular cash dividend
		D)	stock dividend
		E)	stock split


4	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 payout ratio is 20%, what is the dividend per share on BDJ Inc.'s stock?
		A)	$1.00
		B)	$0.68
		C)	$1.55
		D)	$1.25
		E)	$1.89


5	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 does a 3-for-1 stock split, what would you expect the stock price to be after the split?
		A)	$40.50
		B)	$13.50
		C)	$4.50
		D)	$4.33
		E)	$3.67


6	Put the following dates in chronological order: I. declaration date II. payment date III. ex-dividend date IV. record date.
		A)	I, II, III, IV.
		B)	IV, III, II, I.
		C)	I, II, IV, III..
		D)	II, I, IV, III.
		E)	I, III, IV, II.


7	In theory, in a world without taxes, how should the price of a stock change in response to a cash dividend?
		A)	Decrease by exactly the amount of the dividend.
		B)	Increase by exactly the amount of the dividend
		C)	Increase by less than the amount of the dividend
		D)	Decrease by less than the amount of the dividend.
		E)	The price should remain unchanged.


8	According to research, how does the price of a stock change in response to a cash dividend?
		A)	Decrease by exactly the amount of the dividend.
		B)	Increase by exactly the amount of the dividend
		C)	Increase by less than the amount of the dividend
		D)	Decrease by less than the amount of the dividend.
		E)	The price should remain unchanged.


9	On which of the following dates should the price of a share of stock adjust to reflect the impact of the dividend?
		A)	Announcement date.
		B)	Record date
		C)	Ex date
		D)	Effective date
		E)	Payment date.


10	In a world without taxes, ________ matter(s) but ______ should be irrelevant.
		A)	dividends / the ex-date.
		B)	dividend policy / dividends
		C)	stock dividends / cash dividends
		D)	the ex-date / dividends.
		E)	dividends / dividend policy.

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