Finance Chapter 17 2 Firm Will Dividend 10 Next Year

57.

Firm X will a dividend of $10 next year and its stock is expected to sell at $100 after the payment. Firm Y pays no dividend

but its stock is expected to sell at $110. Dividends are taxed at 30% and capital gains are untaxed. If both stocks offer an

after-tax return of 8%, what is the price of the two stocks?

58.

What effect does a stock dividend have on the book and market values of the firm?

59.

An investor owns 300 shares of stock currently selling for $70 per share. After a 3-for-2 stock split, the investor will have:

60.

When a corporation engages in a 10% stock repurchase, it:

61.

A share repurchase is said to be equivalent to the payment of a cash dividend because each strategy:

62.

Assuming no market imperfections, which one of the following will not be affected by a repurchase of shares?

63.

Assuming no market imperfections, which one of the following would not be expected to have an effect on share price?

64.

Which one of the following is correct for a firm with $400,000 in net earnings, 50,000 shares, and a 30% payout ratio?

65.

A firm is said to be “smoothing” dividends if dividends:

66.

Managers have been characterized as reluctant to increase dividends if:

67.

Dividend changes are typically viewed by investors as signals of future changes in:

68.

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?

69.

B Corp has announced four dates (payment date, ex-dividend date, announcement date and record date) associated with its

forthcoming dividend. The dates are August 1, October 1, August 30 and August 28. Which one of these dates is the record

date and which is the ex-dividend date?

70.

MM’s proposition concerning dividends contends that shareholders will:

71.

MM’s assertion that dividend policy will not affect the value of the firm requires that dividend policy does not:

72.

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?

73.

Market imperfections may make the choice between dividends and repurchases relevant. Which of the following is not one

of these imperfections?

74.

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 return if dividends are taxed at 28% and there are no capital gains taxes?

75.

Corporations may have a legitimate preference for dividends over capital gains because:

76.

Stock A has a dividend yield of 8% but no capital gain. Stock B offers a capital gain but no dividend. If a corporate investor

in the 35% tax bracket earns the same after-tax return from the two stocks, what capital gain does B offer?

77.

The date on which actual dividend checks are mailed to shareholders is the:

78.

An investor who owns stock on the company’s __________ date will receive the dividends declared.

79.

Which one of the following is the order in which key dividend dates occur?

80.

A corporation that has an automatic reinvestment plan:

81.

The primary purpose of laws prohibiting a firm from paying dividends that include its legal capital is to:

82.

Kappa Corp has just raised its dividend from $2.50 to $5 per share. (It plans to reduce its repurchases by a similar amount.)

Caterina Chekov, who owns 100 shares of Kappa does not need the extra cash. What can she do to offset the change in

dividend policy?

83.

Kappa Corp and Lambda Corp are identical except that Kappa pays a dividend of $5 per share, while Lambda pays no

dividend and uses the cash to repurchase stock. Peter Berngarten owns 100 shares of Kappa. How could he raise the same

amount of spending money if instead he owned 100 shares of Lambda?

84.

Zeta Corp has 1,000 shares outstanding. Its stock is priced at $100 a share and shareholders expect Zeta to pay dividends of

$10 a year in perpetuity. Now the president suddenly announces that it will keep the total payout the same but will pay only a

quarter of the total amount as dividends and use the remaining cash to buy back stock. What will happen to the share price

now and how much will the share price grow each year?

85.

Which one of the following statements regarding stock dividends and stock splits is true?

86.

Stock repurchases:

87.

Research has shown all of the following to be true of the way corporations determine dividends except:

88.

Which of the following statements is false?

89.

Given a set investment policy and capital structure, then payout policy is a trade-off between ___________ and

___________.

90.

Which statement is correct?

91.

With respect to the proposition that dividend policy does not matter, in order to raise an additional $5,600 in cash by issuing

stock, the stock sold must be worth:

92.

The Beta Corporation has 1,000 shares outstanding and a market value of $90,000. What will be the market value per share

after the firm distributes a $5 per share dividend? Ignore taxes and market imperfections.

93.

Q Corp has decided to pay out an extra $1 million to shareholder, while keeping investment policy and capital structure

constant. Which statement is false?

94.

A dividend increase may be used as __________ of a firm’s __________.

95.

Which party receives the greatest tax benefit from receiving dividends rather than capital gains?

96.

Which of the following statements is correct?

97.

In MM’s analysis, which one of these is not fixed?

98.

Three of the following considerations may suggest that the firm should start paying out cash to its shareholders. Which one is

not a relevant consideration?

99.

Which one of these firms would you most expect to have the highest payout percentage?

100.

Under which conditions are shareholders most likely to be concerned about agency conflicts?

Chapter 17 Test bank – Static Summary