Chapter 18 – Dividend Policy and Retained Earnings
67. In the maturity stage, a firm
68. In the initial stage (Stage I), the corporation
69. When a firm enters Stage III of its life cycle, all of the following are likely to be observed
except which?
Chapter 18 – Dividend Policy and Retained Earnings
70. When a firm enters Stage IV of its life cycle,
71. Stockholders may prefer dividends to reinvestment by the firm
72. A major desire of stockholders regarding dividend policy is
Chapter 18 – Dividend Policy and Retained Earnings
73. Which of the following does not affect a company’s dividend policy?
74. Firm X has declared a stock dividend that pays one share of stock for every 5 shares
owned. After the stock dividend, earnings per share will
75. The Tax Relief Act of 2003
Chapter 18 – Dividend Policy and Retained Earnings
76. Which of the following generally does not influence the dividend policy of the firm?
77. Lucas, Inc. earned $15 million last year and retained $6 million. Lucas has 5 million
shares outstanding, and the current price of Lucas shares is $30 per share. What is the payout
ratio?
Chapter 18 – Dividend Policy and Retained Earnings
78. Mirrlees Furniture earned $750,000 last year and had a 30 percent payout ratio. How
much did the firm add to its retained earnings?
79. The ex-dividend date is the date
80. According to the law, dividends may be funded from:
Chapter 18 – Dividend Policy and Retained Earnings
81. A stock dividend will
82. A stock dividend will
83. CBA Inc has 400,000 shares outstanding with a $5 par value. The shares were issued for
$12. The stock is currently selling for $34. CBA has $5,000,000 in retained earnings and has
declared a stock dividend that will increase the number of outstanding shares by 6%. What
will be the capital in excess of par account after the stock dividend?
Chapter 18 – Dividend Policy and Retained Earnings
84. The primary purpose of a stock split is to
85. Which of the following balance sheet accounts will be affected by a stock dividend but not
by a stock split?
86. A 2-for-1 stock split is declared. In this case which of following statements is true?
Chapter 18 – Dividend Policy and Retained Earnings
87. The stockholders’ equity section of the balance sheet of the XYZ Corp. is as follows:
If the company now splits its stock 3-for-1, which of the following is correct?
88. A stock split
89. At what payout percentage is a stock dividend considered a stock split?
Chapter 18 – Dividend Policy and Retained Earnings
90. A reverse stock split
91. Reverse stock splits take place in many cases
92. A firm with excess cash and few investment alternatives might logically
Chapter 18 – Dividend Policy and Retained Earnings
93. A firm may repurchase stock in the market because
94. Management may repurchase shares of stock in the market
95. A corporation may wish to repurchase some of its shares for all the following reasons
except
Chapter 18 – Dividend Policy and Retained Earnings
96. Some dividend reinvestment plans allow the stockholder to acquire shares of stock
97. All of the following uses of annual earnings would contribute toward an increase in
shareholder value except:
98. A firm will repurchase their own shares in the market because
Chapter 18 – Dividend Policy and Retained Earnings
99. Each of the following are benefits of dividend reinvestment plans to firms except
Chapter 18 – Dividend Policy and Retained Earnings
100. Match the following with the items below:
1. marginal principle
A division of shares by a ratio set by the board of
Dividends paid in additional shares rather than in
Dividends remaining after a portion of earnings have
States that the corporation must be able to earn a
higher return on retained earnings than stockholders
On this date the purchase of stock no longer carries
with it the right to receive the dividend previously
6. dividend
A method of utilizing excess cash that is occasionally
8. dividend payment
Plans that provide the investor with an opportunity to
buy additional shares of stock with cash dividends paid
Chapter 18 – Dividend Policy and Retained Earnings
101. Match the following with the items below
1. dividend reinvestment
6. marginal principle of
10. dividend information
Chapter 18 – Dividend Policy and Retained Earnings
102. Pharma Duece Corporation, which manufactures biotech drugs, has been experiencing a
tremendous growth in the price of its common stock. The stock price increased from $3.25 on
January 1, 2010 to $18.00 per share on December 31, 2010. Its current net worth statement
includes the following:
Chapter 18 – Dividend Policy and Retained Earnings
103. The stockholders’ equity portion of Brimstone Tire Company follows:
104. Maxwell Electronics had net income of $21 million last year, and had 3 million common
shares outstanding. They declared a 12% stock dividend. Calculate EPS before and after the
stock dividend.
Chapter 18 – Dividend Policy and Retained Earnings
18–35
105. Acme Corporation consists of 250 grocery stores throughout the Midwest. At the
beginning of 2010 its statement of net worth showed the following information: Common
Stock ($2 par) $800,000; Capital paid in excess of par $1,400,000 and retained earnings
$500,000. During the year, net income equaled $160,000. Management was undecided on
what to do with the income. Acme paid an annual dividend of $.25 per share last year and the
stock price is currently $14.50. Acme has a 6% growth rate in earnings and dividends, and is
in the 40% tax bracket.
a) What return on investment would Acme have to earn in order to justify retaining 2010’s
earnings? Use the formula:
b) What changes would occur in stockholder’s equity if a $.15 cash dividend was paid? If a
5% stock dividend was given and no cash dividend was paid?
c) What would EPS be before and after the stock dividend?
Chapter 18 – Dividend Policy and Retained Earnings