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45. Which one of the following signals is most likely to elicit a decrease in share price?
46. An increase in share price following an increase in dividends is logical if the:
47. Which one of these parties is most apt to prefer a stock with a low-dividend payout
policy?
48. How much should an investor pay now for a stock expected to sell for $30 one year from
now if the stock offers a $2 dividend, dividends are taxed at 40%, capital gains are taxed at 20%,
and a 15% after-tax return is expected on the investment?
49. Which statement is true concerning the one-year after-tax return on the following stocks,
assuming a 40% tax rate on dividends and a 20% tax rate on capital gains: Stock A is purchased
for $50, offers a 5% dividend yield, and is sold for $56; stock B is purchased for $60, offers no
dividend yield, but is sold after one year for $70.
50. A company is most apt to repurchase stock rather than pay out dividends when the firm:
51. Capital gains may be preferred by investors over dividends even if dividends and capital
gains are taxed at the same rate because:
52. Compare the after-tax returns for a corporation that invests in preferred stock with a 12%
dividend versus a common stock with no dividend but a 16% capital gain. The corporation's tax
rate is 35%. The:
53. Why may a large increase in earnings
not
translate into a large increase in dividends?
54. You purchased a stock today. What should you expect if the stock goes ex-dividend
tomorrow?
55. With respect to the dividend-payment process, the price of a share of stock can logically
be expected to drop on:
56. Automatic dividend reinvestment plans allow firms to:
57. If the total assets of a firm are unaffected by a stock dividend, then:
58. After the payment of a 25% stock dividend, an investor has 500 shares of stock and $400
cash. What did the investor have prior to the stock dividend?
59. What effect does a stock dividend have on the book and market values of the firm?
60. An investor owns 300 shares of stock currently selling for $70 per share. After a 3-for-2
stock split, the investor will have:
61. When a corporation engages in a 10% stock repurchase, it:
62. A share repurchase is said to be equivalent to the payment of a cash dividend because
each strategy:
63. Assuming no market imperfections, which one of the following will
not
be affected by a
repurchase of shares?
64. Assuming no market imperfections, which one of the following would
not
be expected to
have an effect on share price?
65. Which one of the following is correct for a firm with $400,000 in net earnings, 50,000
shares, and a 30% payout ratio?
66. A firm is said to be "smoothing" dividends if dividends:
67. Managers have been characterized as reluctant to increase dividends if:
68. Dividend changes are typically viewed by investors as signals of future changes in:
69. An unlevered firm expects to generate and payout free cash flows of $120,000 annually in
the form of dividends and share repurchases starting next year. The discount rate is 13% and
there are 125,000 shares outstanding. What is the current value per share?
70. When a firm announces a two-for-one stock split (in the absence of other new
information), investors should expect that:
71. MM's proposition concerning dividends contends that shareholders will:
72. MM's assertion that dividend policy will
not
affect the value of the firm requires that
dividend policy does
not
:
73. The manager of XYZ Corp. feels that a dividend increase will increase the stock price
because many investors value stock with a dividend-discount model. Why might MM disagree
with this assertion?
74. Which one of the following is
not
an example of market imperfections that make dividend
policy relevant?
75. A stock is currently priced at $65 per share and will pay a $4 dividend in one year. What
must the stock sell for in one year to meet investors' expectations of a 15% after-tax yield if
dividends are taxed at 28%? Ignore capital gains taxes due to investor timing.
76. Corporations may have a legitimate preference for dividends over capital gains because:
77. What capital gain must a non-dividend-paying stock attain in order for a corporate
investor in the 35% tax bracket to be indifferent to a stock paying an 8% dividend but having no
capital gain?
