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1. Which of the following is the primary goal of a firm?
2. Which of these is the idea that it does not matter whether a firm pays dividends or not as
derived from a Modigliani and Miller Theorem?
3. The Jobs and Growth Tax Relief Reconciliation Act of 2003 changed which of the
following?
4. For most investors, the equalization of the tax rates on capital gains and dividends did
which of the following?
5. Which of the following argues that dividends that the firm has committed to pay are less
risky to risk-averse investors than are potential future capital gains?
6. Modigliani and Miller disagreed with the proposal by Gordon and Lintner regarding
dividends. Why?
17-5
7. What important tax-based reason suggests why some investors might prefer capital
gains?
8. Which of the following is true regarding he information effect of dividend policies?
9. Which of the following refers to the fact that, in real life, investors do not have identical
desires about taxability and timing of firm payouts?
10. Which of the following can be a benefit of the clientele effect?
11. Which of the following is the tendency of investors to find a payout policy that they prefer
and stick with it?
12. Which of the following is a policy of a firm paying out only funds that are left over after all
positive NPV projects are funded?
13. Which of the following firms is more likely to use extraordinary dividends?
14. When does a dividend become a firm obligation?
15. Which of the following is when the Board of Directors announces its intention to pay a
dividend?
16. Regarding dividend payment procedures, which of the following is the first day that the
shares will be traded without the dividend attached?
17. Regarding dividend payment procedures, which of the following is the date the firm would
look on its books to find to whom they can start addressing payments?
18. Which of the following is the date the firm sends dividends out to the shareholders?
19. As the number of days until the next dividend decreases, what will happen to the present
value of the stock?
20. What will happen to the price of the stock once the stock goes ex-dividend?
21. A pro-rata distribution of additional shares of stock to the current owners of the stock is
which of the following?
22. Which of the following is an exchange of existing shares for a different (usually larger)
number of "new shares," with proportionately different par and market values?
23. Which of the following is described as a firm buying back shares of its own stock?
24. Which of the following is an offer announced publicly that specifies in advance a single
purchase price, the number of shares sought, and the duration of the offer?
25. Which of the following is a repurchase where the firm simply buys shares of its own stock
on the stock market just like any other investor would?
26. Suppose a firm pays total dividends of $250,000 out of net income of $2 million. What
would the firm's payout ratio be?
27. Suppose a firm pays total dividends of $100,000 out of net income of $1 million. What
would the firm's payout ratio be?
28. Suppose a firm pays total dividends of $200,000 out of net income of $2.5 million. What
would the firm's payout ratio be?
29. Suppose a firm pays total dividends of $50,000 out of net income of $500,000. What
would the firm's payout ratio be?
30. Suppose a firm pays total dividends of $25,000 out of net income of $100,000. What
would the firm's payout ratio be?
31. Suppose a firm has a retention ratio of 35 percent and net income of $2 million. How
much does it pay out in dividends?
