Chapter 17 - Dividends and Dividend Policy
Chapter 17
Dividends and Dividend Policy
Multiple Choice Questions
1. Green Roof Motels has more cash on hand than its operations require. Thus, the firm has
decided to pay out some of its earnings in the form of cash to its shareholders. What are these
payments to shareholders called?
A. dividends
B. stock payments
C. repurchases
D. payments-in-kind
E. stock splits
2. Lester's Frozen Foods just paid out $0.50 a share to its shareholders. The cash for these
payments came from a large sale of assets, not from any earnings of the firm. What are these
payments to shareholders called?
A. dividends
B. distributions
C. repurchases
D. payments-in-kind
E. stock splits
3. A $0.60 quarterly cash payment paid by T.L. Jones & Co. to its shareholders in the normal
course of business is called a:
A. repurchase.
B. liquidating dividend.
C. regular cash dividend.
D. special dividend.
E. extra cash dividend.
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,Chapter 17 - Dividends and Dividend Policy
4. The board of directors of Wilson Sporting Equipment met this afternoon and passed a
resolution to pay a cash dividend of $0.42 a share next month. In relation to this dividend,
today is referred to as which one of the following dates?
A. decision date
B. date-of-record
C. declaration date
D. payment date
E. ex-dividend date
5. The ex-dividend date is defined as _____ business day(s) before the date of record.
A. 1
B. 2
C. 3
D. 5
E. 10
6. Which one of the following dates is used to determine the names of shareholders who will
receive a dividend payment?
A. ex-rights date
B. ex-dividend date
C. date of record
D. date of payment
E. declaration date
7. Dividend payments are mailed on which one of the following dates?
A. ex-rights date
B. ex-dividend date
C. date of record
D. date of payment
E. declaration date
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,Chapter 17 - Dividends and Dividend Policy
8. Which one of the following refers to the ability of shareholders to undo a firm's dividend
policy and create an alternative dividend policy by reinvesting dividends or selling shares of
stock?
A. perfect foresight model
B. personalization
C. recapitalization
D. offsetting leverage
E. homemade dividend policy
9. What is the information content effect?
A. any type of new information that causes a firm to cease paying dividends
B. any news announcement that was anticipated and thus produces no reaction from investors
C. the primary contributing data that helps directors determine the amount of a particular
dividend payment
D. any type of reaction from a shareholder in response to a news announcement related to the
stock issuer
E. the financial market's reaction to a change in the amount of a firm's dividend
10. The common stock of Pierson Enterprises has historically had a high dividend yield and is
expected to continue to do so. As a result, the majority of its shareholders are individuals and
entities that are seeking a regular source of cash income. Most of these shareholders pay
either no taxes or a relatively low amount of taxes. The fact that most of these shareholders
have similar characteristics is referred to by which one of the following terms?
A. information content effect
B. clientele effect
C. efficient markets hypothesis
D. distribution effect
E. market reaction effect
11. HJ Corporation has excess cash and has opted to buy some of its shares of outstanding
common stock. What is this process of buying called?
A. stock dividend
B. stock split
C. stock repurchase
D. stock recap
E. stock repeal
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, Chapter 17 - Dividends and Dividend Policy
12. Which one of the following involves a payment in shares by a stock issuer that increases
the number of shares a shareholder owns but also decreases the value per share?
A. cash dividend
B. stock dividend
C. stock repurchase
D. stock split
E. reverse stock split
13. Which one of the following does not affect the total equity of a firm but does increase the
number of shares outstanding?
A. special dividend
B. stock split
C. share repurchase
D. rights offer
E. liquidating dividend
14. Bell Weather Markets has recently sold for as little as $8 a share and as much as $15 a
share. The difference between these two prices is referred to as the:
A. price variance.
B. bid-ask spread.
C. trading range.
D. opening price.
E. closing price.
15. A reverse stock split is defined as:
A. an increase in the number of shares outstanding that does not affect owners' equity.
B. a firm buying back existing shares of its stock on the open market.
C. a firm selling new shares of stock on the open market.
D. a decrease in the number of shares outstanding that does not affect owner's equity.
E. a decrease in both the number of shares outstanding and the price per share.
17-4
Chapter 17
Dividends and Dividend Policy
Multiple Choice Questions
1. Green Roof Motels has more cash on hand than its operations require. Thus, the firm has
decided to pay out some of its earnings in the form of cash to its shareholders. What are these
payments to shareholders called?
A. dividends
B. stock payments
C. repurchases
D. payments-in-kind
E. stock splits
2. Lester's Frozen Foods just paid out $0.50 a share to its shareholders. The cash for these
payments came from a large sale of assets, not from any earnings of the firm. What are these
payments to shareholders called?
A. dividends
B. distributions
C. repurchases
D. payments-in-kind
E. stock splits
3. A $0.60 quarterly cash payment paid by T.L. Jones & Co. to its shareholders in the normal
course of business is called a:
A. repurchase.
B. liquidating dividend.
C. regular cash dividend.
D. special dividend.
E. extra cash dividend.
17-1
,Chapter 17 - Dividends and Dividend Policy
4. The board of directors of Wilson Sporting Equipment met this afternoon and passed a
resolution to pay a cash dividend of $0.42 a share next month. In relation to this dividend,
today is referred to as which one of the following dates?
A. decision date
B. date-of-record
C. declaration date
D. payment date
E. ex-dividend date
5. The ex-dividend date is defined as _____ business day(s) before the date of record.
A. 1
B. 2
C. 3
D. 5
E. 10
6. Which one of the following dates is used to determine the names of shareholders who will
receive a dividend payment?
A. ex-rights date
B. ex-dividend date
C. date of record
D. date of payment
E. declaration date
7. Dividend payments are mailed on which one of the following dates?
A. ex-rights date
B. ex-dividend date
C. date of record
D. date of payment
E. declaration date
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,Chapter 17 - Dividends and Dividend Policy
8. Which one of the following refers to the ability of shareholders to undo a firm's dividend
policy and create an alternative dividend policy by reinvesting dividends or selling shares of
stock?
A. perfect foresight model
B. personalization
C. recapitalization
D. offsetting leverage
E. homemade dividend policy
9. What is the information content effect?
A. any type of new information that causes a firm to cease paying dividends
B. any news announcement that was anticipated and thus produces no reaction from investors
C. the primary contributing data that helps directors determine the amount of a particular
dividend payment
D. any type of reaction from a shareholder in response to a news announcement related to the
stock issuer
E. the financial market's reaction to a change in the amount of a firm's dividend
10. The common stock of Pierson Enterprises has historically had a high dividend yield and is
expected to continue to do so. As a result, the majority of its shareholders are individuals and
entities that are seeking a regular source of cash income. Most of these shareholders pay
either no taxes or a relatively low amount of taxes. The fact that most of these shareholders
have similar characteristics is referred to by which one of the following terms?
A. information content effect
B. clientele effect
C. efficient markets hypothesis
D. distribution effect
E. market reaction effect
11. HJ Corporation has excess cash and has opted to buy some of its shares of outstanding
common stock. What is this process of buying called?
A. stock dividend
B. stock split
C. stock repurchase
D. stock recap
E. stock repeal
17-3
, Chapter 17 - Dividends and Dividend Policy
12. Which one of the following involves a payment in shares by a stock issuer that increases
the number of shares a shareholder owns but also decreases the value per share?
A. cash dividend
B. stock dividend
C. stock repurchase
D. stock split
E. reverse stock split
13. Which one of the following does not affect the total equity of a firm but does increase the
number of shares outstanding?
A. special dividend
B. stock split
C. share repurchase
D. rights offer
E. liquidating dividend
14. Bell Weather Markets has recently sold for as little as $8 a share and as much as $15 a
share. The difference between these two prices is referred to as the:
A. price variance.
B. bid-ask spread.
C. trading range.
D. opening price.
E. closing price.
15. A reverse stock split is defined as:
A. an increase in the number of shares outstanding that does not affect owners' equity.
B. a firm buying back existing shares of its stock on the open market.
C. a firm selling new shares of stock on the open market.
D. a decrease in the number of shares outstanding that does not affect owner's equity.
E. a decrease in both the number of shares outstanding and the price per share.
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