18) According to the residual theory of dividends
A) dividends are to be paid out only after investment inancing needs have been met.
B) earnings remaining after payment of preferred stock dividends should be paid to
common stockholders.
C) dividend payments are a constant percentage of EPS.
D) a dividend is the residual above the payout ratio.
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
19) Franklin Electric is presently generating earnings available to common shareholders of
$7.25 per share. The irm’s income tax rate is 40%. Franklin is paying a dividend to the
preferred shareholders of $2.10 per share. The irm’s dividend payout ratio on common
stock is 20%. What is the amount per share that Franklin will pay in dividends to common
shareholders?
A) $0.58
B) $1.45
C) $3.12
D) $0.42
E) $2.20
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
20) Which of the following policies would appeal to an investor using dividends to increase
her retirement income?
A) Maintaining smoothly increasing dividends from year to year.
B) A residual dividend policy.
C) Maintaining a constant dividend payout ratio.
D) A stock repurchase plan.
Question Status: New question
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
21) The dividend policy that states smoothing of the dividend stream in order to minimize
the efect of company reversals is called the
A) increasing-stream hypothesis of dividend policy.
B) stable dividend policy.
C) clientele efect policy.
D) residual payout policy.
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
22) Which of the following considerations would be expected to inluence a irm’s decision
regarding the payment of dividends?
A) Earnings predictability
B) Legal restrictions
C) Liquidity position
D) All of the above
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
23) Groups of investors who prefer one distribution method over another are known as
A) pressure groups.
B) return chasers.
C) dividend clienteles.
D) retirees.
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
24) We typically expect to ind rapidly growing irms to have high payout ratios.
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
25) Reducing dividends will usually have a negative impact on the stock price.
Question Status: New question
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
26) The residual dividend theory suggests that dividends should be paid to stockholders
irst, and then, what is left can be reinvested by the irm.
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
27) Company managers strive to gradually increase dividend series over the long-term
future.
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
28) Unexpected dividend changes would cause investors to reassess their perceptions
about a irm’s stock.
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
29) Managers are prohibited from using dividend changes and repurchase ofers to
communicate information concerning their future expectations concerning the irm’s cash
lows.
Question Status: New question
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
30) European irms tend to pay out more dividends than U. S. irms.
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
31) The stable dividend policy is the most common.
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
32) The residual dividend theory indicates that a irm would never pay dividends unless the
irm’s proits were larger than its equity inancing needs.
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
33) Share repurchases convey information to investors that the shares are underpriced.
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
34) Compare management’s motives for preferring either stock repurchases or cash
dividends.
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information
35) Compare the Stable Dividend Payout to the Residual Dividend Policy.
Question Status: Previous edition
Objective: 16.3 Describe corporate dividend policies that are commonly used in practice.
Keywords: dividend policy
Principles: Principle 4: Market Prices Relect Information