FIN 480 EXAM 1 QUESTIONS AND ANSWERS
How frequently do dividend-paying firms in the United States generally pay regular cash
dividends? - Answers - quarterly
Payments made out of a firm's earnings to its owners in the form of cash or stock are
called - Answers - dividends
Payments made by a firm to its owners from sources other than current or accumulated
earnings are called - Answers - distributions
A cash payment made by a firm to its owners when some of the firm's assets are sold
off is called a(n) - Answers - liquidating dividend
Which one of the following actions increases a firm's number of shares outstanding
without changing its owners' equity? - Answers - stock split
The date on which the board of directors passes a resolution authorizing payment of a
dividend to the shareholders is the __________ date. - Answers - declaration
The date before which a new purchaser of stock is entitled to receive a declared
dividend, but on or after which she does not receive the dividend, is called the
__________ date. - Answers - ex-dividend
The date by which a stockholder must be registered on the firm's roll as having share
ownership in order to receive a declared dividend is called the - Answers - date of
record
The date on which the firm mails out its declared dividends is called the - Answers -
date of payment
If you want to receive the recently declared dividend on Motiwala stock, you must
purchase your shares __________ or more business day(s) prior to the date of record. -
Answers - three
The dividend amount divided by the earnings per share amount is referred to as the
dividend - Answers - payout
Temitope purchased 100 shares of WowNet stock on Wednesday, March 5th. Xiang
purchased 100 shares of WowNet stock on Friday, March 7th. WowNet declared a
dividend on February 18th to shareholders of record on March 10th. The dividend is
payable on April 1st. Given this information, which one of the following statements is
correct? - Answers - Temitope is entitles to the dividend but Xiang is not
,All else equal, the market value of a stock will tend to decrease by roughly the amount
of the - Answers - aftertax dividend amount on the ex-dividend date.
On the date of record, the stock price drop related to the dividend is - Answers - zero
because the adjustment occurs on the ex-dividend date.
Which one of the following actions can a shareholder employ to alter the dividend policy
of a firm? - Answers - homemade dividend
The indifference policy advocates that - Answers - dividend policy is irrelevant.
Which one of the following actions is most apt to affect the total value of a stockholder's
investment in the firm? - Answers - Forgoing a positive NPV project in order to increase
the dividend amount
A __________ is an alternative method to cash dividends that is used to distribute a
firm's earnings to shareholders. - Answers - share repurchase
Which one of the following statements is correct regarding large U.S. firms for the
period 2004 to 2017? - Answers - Corporate earnings tend to be more volatile than
either dividends or repurchases.
Which of the following are common characteristics of a tender offer?
I. The offer can be cancelled if less than the desired number of shares are offered.
II. Sellers are unaware that the buyer is the issuer of the security.
III. The offers made by the sellers determine the price.
IV. The offer price is generally greater than the market price. - Answers - I and IV only
Companies are more apt to choose repurchases over dividends if doing so will enable
them to
I. take advantage of a market undervaluation of their shares.
II. maintain or increase the value of executive stock options.
III. offset the dilution created by the exercise of executive stock options.
IV. distribute revenue increases that are considered temporary or short-term in nature. -
Answers - I, II, III, and IV
From a tax-paying shareholder's point of view, a stock repurchase - Answers - is more
desirable than a cash dividend.
The fact that flotation costs can be significant is justification for - Answers - maintaining
a low dividend policy and rarely issuing extra dividends.
Which of the following tend to keep dividends low?
I. Potential for companies to use excess cash on negative NPV projects
II. Restrictive terms contained in bond indenture agreements
III. Manager's desire to maintain constant dividends over time
, IV. Flotation costs - Answers - II, III, and IV only
The IRS code discourages the accumulation of surplus cash thereby encouraging
dividends.
true false - Answers - true
If the shareholders of an acquired company receive shares in the acquirer rather than
cash, they avoid paying taxes.
true false - Answers - true
How can management best signal the market that a firm is doing well? - Answers -
increase the regular dividend amount
Behavioral finance supports the - Answers - payment of dividends rather than stock
repurchases.
Which one of the following is an argument in favor of a low dividend policy? - Answers -
only the gain on a sale of stock is taxed
Siegfried Market has been paying a quarterly dividend of $2.10 per share. Which of the
following are valid reasons for the firm to reduce or eliminate these dividends?
I. The firm is on the verge of violating a bond restriction.
II. The firm wants to save cash for an acquisition with a 40 percent premium.
III. The firm can raise new capital easily at a very low cost.
IV. Congress just changed the tax laws eliminating all taxes on capital gains. - Answers
- I and IV only
The argument that selling stock involves too much leeway is the - Answers - behavioral
finance argument in favor of high dividends.
Shareholders are more apt to prefer a high dividend payout if a firm - Answers - will
spend the funds on a high-premium acquisition if the dividend is not paid.
Correct
The information content of a regular dividend increase generally signals that - Answers -
management believes the future earnings of the firm will be strong.
The existence of agency costs provide justification for - Answers - higher dividends over
lower dividends.
The observed empirical fact that stocks attract particular investors based on the firm's
dividend policy and the resulting tax impact on investors is called the - Answers -
clientele effect.
How frequently do dividend-paying firms in the United States generally pay regular cash
dividends? - Answers - quarterly
Payments made out of a firm's earnings to its owners in the form of cash or stock are
called - Answers - dividends
Payments made by a firm to its owners from sources other than current or accumulated
earnings are called - Answers - distributions
A cash payment made by a firm to its owners when some of the firm's assets are sold
off is called a(n) - Answers - liquidating dividend
Which one of the following actions increases a firm's number of shares outstanding
without changing its owners' equity? - Answers - stock split
The date on which the board of directors passes a resolution authorizing payment of a
dividend to the shareholders is the __________ date. - Answers - declaration
The date before which a new purchaser of stock is entitled to receive a declared
dividend, but on or after which she does not receive the dividend, is called the
__________ date. - Answers - ex-dividend
The date by which a stockholder must be registered on the firm's roll as having share
ownership in order to receive a declared dividend is called the - Answers - date of
record
The date on which the firm mails out its declared dividends is called the - Answers -
date of payment
If you want to receive the recently declared dividend on Motiwala stock, you must
purchase your shares __________ or more business day(s) prior to the date of record. -
Answers - three
The dividend amount divided by the earnings per share amount is referred to as the
dividend - Answers - payout
Temitope purchased 100 shares of WowNet stock on Wednesday, March 5th. Xiang
purchased 100 shares of WowNet stock on Friday, March 7th. WowNet declared a
dividend on February 18th to shareholders of record on March 10th. The dividend is
payable on April 1st. Given this information, which one of the following statements is
correct? - Answers - Temitope is entitles to the dividend but Xiang is not
,All else equal, the market value of a stock will tend to decrease by roughly the amount
of the - Answers - aftertax dividend amount on the ex-dividend date.
On the date of record, the stock price drop related to the dividend is - Answers - zero
because the adjustment occurs on the ex-dividend date.
Which one of the following actions can a shareholder employ to alter the dividend policy
of a firm? - Answers - homemade dividend
The indifference policy advocates that - Answers - dividend policy is irrelevant.
Which one of the following actions is most apt to affect the total value of a stockholder's
investment in the firm? - Answers - Forgoing a positive NPV project in order to increase
the dividend amount
A __________ is an alternative method to cash dividends that is used to distribute a
firm's earnings to shareholders. - Answers - share repurchase
Which one of the following statements is correct regarding large U.S. firms for the
period 2004 to 2017? - Answers - Corporate earnings tend to be more volatile than
either dividends or repurchases.
Which of the following are common characteristics of a tender offer?
I. The offer can be cancelled if less than the desired number of shares are offered.
II. Sellers are unaware that the buyer is the issuer of the security.
III. The offers made by the sellers determine the price.
IV. The offer price is generally greater than the market price. - Answers - I and IV only
Companies are more apt to choose repurchases over dividends if doing so will enable
them to
I. take advantage of a market undervaluation of their shares.
II. maintain or increase the value of executive stock options.
III. offset the dilution created by the exercise of executive stock options.
IV. distribute revenue increases that are considered temporary or short-term in nature. -
Answers - I, II, III, and IV
From a tax-paying shareholder's point of view, a stock repurchase - Answers - is more
desirable than a cash dividend.
The fact that flotation costs can be significant is justification for - Answers - maintaining
a low dividend policy and rarely issuing extra dividends.
Which of the following tend to keep dividends low?
I. Potential for companies to use excess cash on negative NPV projects
II. Restrictive terms contained in bond indenture agreements
III. Manager's desire to maintain constant dividends over time
, IV. Flotation costs - Answers - II, III, and IV only
The IRS code discourages the accumulation of surplus cash thereby encouraging
dividends.
true false - Answers - true
If the shareholders of an acquired company receive shares in the acquirer rather than
cash, they avoid paying taxes.
true false - Answers - true
How can management best signal the market that a firm is doing well? - Answers -
increase the regular dividend amount
Behavioral finance supports the - Answers - payment of dividends rather than stock
repurchases.
Which one of the following is an argument in favor of a low dividend policy? - Answers -
only the gain on a sale of stock is taxed
Siegfried Market has been paying a quarterly dividend of $2.10 per share. Which of the
following are valid reasons for the firm to reduce or eliminate these dividends?
I. The firm is on the verge of violating a bond restriction.
II. The firm wants to save cash for an acquisition with a 40 percent premium.
III. The firm can raise new capital easily at a very low cost.
IV. Congress just changed the tax laws eliminating all taxes on capital gains. - Answers
- I and IV only
The argument that selling stock involves too much leeway is the - Answers - behavioral
finance argument in favor of high dividends.
Shareholders are more apt to prefer a high dividend payout if a firm - Answers - will
spend the funds on a high-premium acquisition if the dividend is not paid.
Correct
The information content of a regular dividend increase generally signals that - Answers -
management believes the future earnings of the firm will be strong.
The existence of agency costs provide justification for - Answers - higher dividends over
lower dividends.
The observed empirical fact that stocks attract particular investors based on the firm's
dividend policy and the resulting tax impact on investors is called the - Answers -
clientele effect.
