Ch17 Smartbook

A firm has declared a 3 for 1 stock split.You currently own 100 shares priced at $60 each. What will the price per share be after the split?

$20 Reason: $60/3=$20

A firm has just declared a 1 for 5 reverse stock split. You own 100 shares priced at $5 each. What will be the price per share after the reverse split?

$25 Reason: $5 x 5 = $25 for each of your 20 shares

A firm has declared a stock dividend of 25 percent.You currently own 100 shares priced at $50 per share. What will be the price per share after the stock dividend?

$40 $50/1.25=$40

A firm has declared a stock dividend of 25 percent. You currently own 100 shares. How many shares will you own after you receive the stock dividend?

125

A firm has just declared a 1 for 5 reverse stock split. You own 100 shares. How many shares will you have after the reverse split?

20 100/5 = 20

The top tax rate on both dividends and capital gains is ______.

23.8%

A firm has declared a 3 for 1 stock split.You currently own 100 shares. How many shares will you own after the split?

300

If Nuka-Cola Inc declared a stock dividend of 20%, John-Caleb would receive _____new shares if he currently owned 20,000 shares.

4000

From 2011 to 2017, what percentage of firms neither paid a dividend nor repurchased shares?

42%

Which of the following are restrictions that state law may place on the payment of dividends?

Firms may not pay dividends if doing so would make them insolvent. Firms may not pay dividends if doing so would cut into legal capital.

Which of the following statements is(are) true of the payout practices of U.S. firms between 2003 and 2014?

Most firms did not payout cash at all. More firms paid dividends than repurchased shares

Which of the following are ways that firms pay out cash to shareholders?

Repurchase shares Pay cash dividends

Which of the following statements is true?

Repurchases have grown in popularity since 1980.

Some investors have preference for high dividend payout stocks. Which of the following are reasons why investors may prefer high dividend stocks?

Some financial institutions are legally restricted from holding stocks lacking established dividend records. Some investors use dividends for a steady source of cash income to live on.

True or false: if lenders are concerned about the creditworthiness of the borrowing firm, they may restrict dividends to protect their interests

True

One of the advantages of capital gains over dividends is that taxes on dividends must be paid immediately, while taxes on capital gains ________.

may be deferred until the stock is sold

If a dividend cut conveys information to shareholders that they already expected or knew, then the effect of the announcement of the dividend cut on the firm's share price may be ______.

negligible

When a firm repurchases stock by purchasing it in the secondary market like any other shareholder, this is called a(n) _________.

open-market repurchase

Misuse of cash by managers of firms that have plentiful cash but few good investment opportunities can ________ firm value.

reduce

If investors pay a higher tax rate on dividends than on capital gains, then investors should prefer firms that _____ over firms that ______.

repurchase shares; pay dividends

Which form of government is most likely to set limitations on dividends?

state law

A distribution of additional shares to a firm's stockholders is called a:

stock dividend

When a firm repurchases stock by offering to buy back a stated number of shares at a fixed price, this is a(n) ________.

tender offer

Ignoring taxes and market imperfections, the total wealth of shareholders is _______ if the firm distributes cash by dividends rather than by repurchases.

the same

If a firm pays for a dividend by issuing additional shares of stock, it's total firm value will be _____

unchanged or constant

If a firm pays for a dividend by issuing additional shares of stock, its total firm value will be ______ and its price per share will _______.

unchanged; decrease

A share repurchase may signal to investors that the firm's shares are _________.

underpriced

If banks are worried about a borrower's ability to pay back debt, they may decide to place ____________ on the firm.

dividend restrictions

In order to accommodate share repurchases by a dividend paying firm, the Dividend Discount Model must use ________ for its cash flows.

dividends per share

The date after which a purchaser of stock is not eligible to receive the declared dividend is the _______.

ex-dividend date

True or false: A firm will increase its value by increasing its dividends.

false

True or false: Dividend cuts convey bad news especially when the information is already out.

false

It makes more sense for young firms to have a (high/low) earnings reinvestment rate.

high

If dividends and repurchases return cash to investors that would otherwise be misused by managers, then such dividends and repurchases may _______ firm value.

increase

If the firm chooses a payout policy that results in less taxes paid by investors on their returns, then its stock price should ______.

increase

The announcement of a dividend increase prompts a(n) _______ in stock price and a dividend decrease prompts a(n) ________ in stock price.

increase; decrease

When a firm repurchases some of its shares, their price per share _______ by the amount of the repurchase.

is not affected

Which of the following statements is/are correct?

Accumulation of cash by a mature firm can lead to problems like overinvestment and excessive perks. Shareholders' taxes can be affected by the firm's decision to payout cash or retain it. In a maturing company that is not paying out cash to shareholders, the stock price will begin to stagnate.

Which type of firm is most likely to pay a dividend?

a mature, profitable company

Which types of firms are less likely to pay a dividend? a mature, struggling company a growth company a mature, profitable company

a mature, struggling company a growth company

The announcement of a share repurchase may have a less positive effect on the firm's share price than a dividend increase announcement because ___________.

announcement of a share repurchase is not a commitment to future repurchases

To shareholders, an increase in the dividend payment sends a signal of managers' ________.

confidence in the future prospects of the firm