Chapter 17 Test bank – Static Key
1.
Stocks that are purchased on the record date are not entitled to the dividend.
2.
Anyone holding a stock before its ex-dividend date is entitled to the dividend.
3.
Companies can pay out cash to their shareholders in two ways. They can pay a dividend or they can buy back some of their
outstanding shares.
4.
In recent years more than half of U.S. corporations did not pay a dividend nor did they repurchase shares.
5.
Over the past 30 years stock repurchases have become an increasingly popular way of paying out cash.
6.
In a three-for-two stock split, each investor would receive one additional share for each two shares already held.
7.
Many companies offer their shareholders an automatic dividend reinvestment plan. This means that the shareholders
automatically receive the dividend on the payment date.
8.
Dividends are paid to all shareholders who are recorded in its books on the payment date.
9.
Dividends are paid to all shareholders who are recorded in its books on the record date.
10.
A two-for-one stock split is like a 200% stock dividend
11.
Investors often interpret a stock split announcement as a signal of management’s confidence in the future.
12.
A stock split will affect the stock’s price, while a stock dividend will not.
13.
Stock repurchases are more volatile than dividends.
14.
The share price declines when a stock repurchase occurs.
15.
Dividends are likely to shift up and down as earnings fluctuate so that managers can maintain a stable payout ratio.
16.
Corporate dividends are less volatile than corporate earnings.
17.
MM’s dividend irrelevance proposition assumes an efficient market with no taxes or issue costs.
18.
According to the MM dividend irrelevance proposition, since investors do not need dividends to convert their shares to cash,
they will not pay higher prices for firms with higher dividend payouts.
19.
The most common way that companies buy back their stock is to buy it in the market just like any other investor.
20.
The information content of dividends says that dividend increases send good news about cash flow and earnings, while
dividend cuts send bad news.
21.
The longer an investor waits to take capital gains, the lower is the present value of the tax liability.
22.
Firms can increase their stock price by increasing their dividends to a level that appeals to the clientele group that prefers
high-dividend stocks.
23.
A dividend will be paid to shareholders on Friday, May 9. To receive this dividend you must purchase the stock no later
than:
24.
You currently own 200 shares of stock valued at $6 per share. If the firm declares a 1-for-4 reverse stock dividend you will
own ____ shares valued at ___ per share.
25.
A stock goes ex-dividend:
26.
What would you expect to happen to the price of a share of stock on the day it goes ex-dividend if you ignore taxes? The
price should:
27.
Which one of these is the most common method of share repurchase?
28.
Boards of directors may be legally restricted in their declaration of dividends if:
29.
ABC Corp. stock is selling for $30 per share when a 10% stock dividend is declared. If you own 100 shares of ABC Corp.
then you will receive:
30.
Which statement is correct?
31.
Which of the following is not a way to repurchase stock?
32.
An investor owns 5,000 shares, which is 1% of a corporation’s outstanding stock before a stock repurchase. The investor did
not sell any of his stock during the 25,000 share repurchase. Which one of the following statements is correct?
33.
Which one of these statements is correct?
34.
Stock repurchases may be interpreted by investors as a signal that:
35.
A firm has current assets of $1.2 million, fixed assets of $3.6 million, and debt of $2.2 million. There are 250,000 shares of
stock outstanding. What will be the book value of equity if the firm repurchases 10% of its outstanding shares for $10.40 a
share?
36.
A policy of dividend “smoothing” refers to:
37.
How are investors most apt to interpret a reduction in a firm’s regular dividend payment?
38.
What is the new share price for a corporation with a current share price of $4 that employs a 2-for-9 reverse split?
39.
If investors are expecting a dividend cut, then the announcement of the decreased dividend payment will:
40.
MM’s proposition of dividend irrelevance depends upon:
41.
A firm has $250,000 to spend on either a one-time special dividend or on a share repurchase program. If the share repurchase
is selected, then the firm’s:
42.
Based on the dividend growth model, a lower current payout will not affect the stock price, provided that the:
43.
Why are dividend changes rather than the absolute level of dividends perceived to be more important to managers and
shareholders?
44.
Which one of the following signals is most likely to elicit a decrease in share price?
45.
An increase in share price following an increase in dividends is logical if the:
46.
Which one of these parties is most likely to prefer a stock with a high-dividend payout policy?
47.
An investor buys a stock today for $26, receives a dividend of $2 at the end of the year and then sells the stock for $30. If the
dividend is taxed at 40% and the capital gain at 20%, what is his return after tax?
48.
What is the difference in the one-year after-tax returns on the following two stocks, assuming a 40% tax rate on dividends
and a 20% tax rate on capital gains? Stock A is purchased for $50, pays a $2.5 dividend at the end of the year, and is then
sold for $56; stock B is purchased for $60, pays no dividend, but is sold after one year for $70.
49.
A company is more likely to repurchase stock rather than pay out dividends when the firm:
50.
Capital gains may be preferred by investors over dividends even if dividends and capital gains are taxed at the same rate
because:
51.
Compare the after-tax returns for a corporation that invests in preferred stock with a 12% dividend yield versus a common
stock with no dividend but a 16% capital gain. The corporation’s tax rate is 35%. The:
52.
Why may a large increase in earnings not translate into a large increase in dividends?
53.
You purchased a stock today. What should you expect if the stock goes ex-dividend tomorrow?
54.
With respect to the dividend-payment process, the price of a share of stock can logically be expected to drop on:
55.
Automatic dividend reinvestment plans allow firms to:
56.
Evenglade Corp has 1,000 shares outstanding priced at $10 a share. The company is unsure whether to pay out $1 a share as
a dividend or to use the money to repurchase stock. If it pays a dividend, what happens to the stock price? If it repurchases,
how many shares will remain and at what price?