978-0134083308 Chapter 6 Part 3

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15) You are given the following information on a company.

Which one of the following statements is correct based on the information provided?

A) The market price is $21.34 per share.

B) The investment value is $2.67 per share.

C) The par value is $2.67 per share.

D) The book value is $21.34 per share.

AACSB: 3 Analytical thinking

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Learning Goal: Learning Goal 4

16) The value that investors place on a stock is called its

A) book value.

B) investment value.

C) liquidation value.

D) par value.

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17) What is the relationship between a stock’s market value and its investment value?

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6.5 Learning Goal 5

1) A company’s board of directors must declare a dividend if the firm is profitable.

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2) Shareholders who sell their stock on or after the ex-dividend date, but before the date of

record, will still receive the declared dividend.

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3) High dividend yields are typical of rapidly growing companies.

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4) Dividend payments are usually more stable than capital gains.

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into practice)

Question Status: New Question

Learning Goal: Learning Goal 5

5) Stock dividends do not increase the value of a shareholder’s position.

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6) Stock dividends and stock splits both increase the number of shares but add nothing to the

value of the company.

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7) Cash dividends are taxed at the same rate as ordinary income.

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8) The stock listing for a company shows a P/E of 18, a dividend yield of 2.4% and a closing

price of $23.76. What is the amount of dividends per share?

A) $0.03

B) $0.57

C) $1.03

D) $1.32

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9) The decision of how much money to pay out in dividends is made by the

A) board of directors.

B) company shareholders.

C) chief executive officer.

D) chief financial officer.

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10) Factors considered in making a decision on a firm’s dividend include the

I. cash position of the firm.

II. firm’s growth prospects.

III. the expectations of the shareholders.

IV. minimum dividends required by law.

A) II and IV only

B) I, II and IV only

C) I, II and III only

D) I, II, III and IV

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11) The date on which an investor must be a registered shareholder of the firm in order to

receive a dividend is called the

A) date of record.

B) ex-dividend date.

C) payment date.

D) purchase date.

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12) The Limberger Corporation declared a quarterly dividend of $0.10 per share. The ex–

dividend date was July 15, the date of record was July 18, and the payment date was July 28. If

you had owned 100 shares of the Limberger Corporation and sold them on July 15, then

A) you would collect $10.00 in dividends, and the purchaser would not collect any dividends.

B) the purchaser would collect $10.00 in dividends, and you would not collect any dividends.

C) you would collect $5.00 in dividends, and the purchaser would collect $5.00 in dividends.

D) neither you nor the purchaser would collect any money in dividends.

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13) The common shares of the Hiboux Ltd have a book value of $21.60 and a market value of

$28.60. The company pays $0.28 in dividends each quarter. What is the dividend yield?

A) 1.0%

B) 1.3%

C) 3.9%

D) 5.2%

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14) Since 2003, most dividends are taxed

A) at a higher rate than capital gains.

B) at a lower rate than capital gains.

C) at the same rate as ordinary income.

D) at the same rate as capital gains.

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15) Since 2003, dividends have been taxed at the same rate as capital gains. As a result,

A) many companies have reduced the percentage of earnings paid out as dividends.

B) many companies have increased the percentage of earnings paid out as dividends.

C) tax rates have had little or no effect on dividend policies.

D) more companies have replaced dividends with stock repurchase plans.

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16) Dividend yield is calculated by dividing

A) the market price of one share of stock by the annual dividend per share.

B) the annual dividend per share by the market price of one share of stock.

C) earnings per share by market price per share.

D) annual dividend per share by earnings per share.

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17) If a corporation declares a 10% stock dividend, then

A) the share price of the stock will most likely decline by about 9%.

B) the share price of the stock will most likely increase by about 10%.

C) the share price of the stock will most likely remain unchanged.

D) each shareholder will get a 10% cash rebate off his or her next round lot purchase of the

stock.

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18) Gypsum Corp. pays out 25% of its earnings as dividends. Earnings per share are currently

$1.32, book value per share is $16.80, and the market price per share is $22.44. What is the

dividend yield?

A) 1.5%

B) 2.0%

C) 5.9%

D) 7.9%

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19) Pilgrim Corp. stock currently sells for $25 per share? The annual dividend payment is

$1.00 per share and earnings per share are $3.00. The dividend yield is ________ and the

dividend payout ratio is ________.

A) 12%; .4%

B) 8.33%; 25%

C) 4%; 33%

D) 33%; 4%.

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20) Pilgrim Corp. stock currently sells for $25. The dividend yield is 4% and the dividend

payout ratio is 25%. The dividend is ________ and the earnings per share are ________.

A) $3.00; $1.00

B) $1.00; $4.00

C) $.12; $1.00

D) $.25; $6.25

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21) To take advantage of the opportunity to acquire additional shares of a company‘s stock

without incurring any brokerage commissions, many investors participate in

A) initial public offerings.

B) dividend reinvestment plans.

C) deferred equity securities.

D) corporate trusts.

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22) Reinvested dividends

A) are taxed when the shares purchased with the reinvested dividend are sold.

B) are taxed at the time the dividend is paid.

C) do not increase the value of an investors holdings.

D) are generally sold at a premium over the market price.

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6.6 Learning Goal 6

1) Stocks which perform well in a faltering economy are called defensive stocks.

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2) Mid-cap stocks are generally classified as those with a market capitalization between $2 and

$10 billion.

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3) “Baby blues” is a term used to refer to telecom stocks.

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4) A stock can be both a tech stock and a blue chip stock at the same time.

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5) So-called income stocks pay fixed dividends similar to interest on bonds.

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6) American Depositary Receipts (ADRs) are issued against shares of U.S. corporations and are

traded on foreign security exchanges.

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7) American Depositary Receipts (ADRs) are denominated in U.S. dollars and traded on U.S.

security exchanges. but track the performance of a foreign corporation.

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8) Over the period 1900 to 2014, U.S. stocks had the highest rate of return of any country.

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9) The rate of return on a foreign investment is affected by changes in the exchange rates.

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10) An increase in the value of the dollar relative to the yen has a positive effect on the returns

of U.S. investors who invest in stocks of Japanese firms.

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11) An increase in the dollar relative to the euro has a negative effect on the returns of U.S.

investors who invest in European firms.

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12) The most common reason for an investor to adopt the quality long-term growth investment

strategy is for long-term accumulation of capital.

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13) The total-return approach concentrates solely on capital gains over the long term.

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14) Which one of the following is a characteristic of blue chip stocks?

A) guaranteed minimum annual dividend of $2 a share

B) annual dividends of more than $5 per share

C) long and stable dividend and earnings records

D) relatively high risk exposure

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Learning Goal: Learning Goal 6