CF 19

share repurchase

A _____ is an alternative method to cash dividends which is used to pay out a firm's earnings to shareholders.

regular cash dividend

A cash payment made by a firm to its owners in the normal course of business is called a:

liquidating dividend

A cash payment made by a firm to its owners when some of the firm's assets are sold off is called a:

dutch auction

A firm announces that it is willing to purchase a number of shares back at various prices and shareholders have the option to indicate how many shares they are willing to sell at various prices. This process is called a:

$1.86

A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,000 and other assets of $6,000. Equity is worth $18,000. The firm has 700 shares of stock outstanding and net income of $1,200. What will the new earnings per share be if the firm uses its excess cash to complete a stock repurchase?

$4.50

A firm has a market value equal to its book value. Currently, the firm has excess cash of $400 and other assets of $7,600. Equity is worth $8,000. The firm has 200 shares of stock outstanding and net income of $900. The firm has decided to pay out all of its excess cash as a cash dividend. What will the earnings per share be after the dividend is paid?

$38

A firm has a market value equal to its book value. Currently, the firm has excess cash of $500 and other assets of $9,500. Equity is worth $10,000. The firm has 250 shares of stock outstanding and net income of $1,400. What will the stock price per share be if the firm pays out its excess cash as a cash dividend?

$2.00

A firm has a market value equal to its book value. Currently, the firm has excess cash of $600 and other assets of $5,400. Equity is worth $6,000. The firm has 500 shares of stock outstanding and net income of $900. What will the new earnings per share be if the firm uses its excess cash to complete a stock repurchase?

520 shares

A firm has a market value equal to its book value. Currently, the firm has excess cash of $800 and other assets of $5,200. Equity is worth $6,000. The firm has 600 shares of stock outstanding and net income of $700. The firm has decided to spend all of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?

increase a $1 par value to $4

A one-for-four reverse stock split will:

stock

A payment made by a firm to its owners in the form of new shares of stock is called a _____ dividend.

several old shares, such as 4, are replaced by 1 new share

A reverse split is when:

keeping a firm's stock eligible for trading on a stock exchange

A reverse stock split is sometimes used as a means of:

20 to 25

A small stock dividend is defined as a stock dividend of less than _____%.

does not affect the total value of any of the equity accounts

A stock split:

increase; decrease

All else equal, a stock dividend will _____ the number of shares outstanding and _____ the value per share.

ex-dividend date

All else equal, the market value of a stock will tend to decrease by roughly the amount of the dividend on the:

stock split

An increase in a firm's number of shares outstanding without any change in owners' equity is called a:

has few, if any, positive net present value projects

An investor is more likely to prefer a high dividend payout if a firm:

$22.50

Bob's Auto Group has 25,000 shares of stock outstanding at a market price of $4.50 a share. What will the market price per share be if the company does a 1-for-5 reverse stock split?

cash dividends are increased for one year while others are held constant, thus causing an increase in stock price, and dividend policy establishes the trade-off between dividends at different dates

Dividends are relevant and dividend policy irrelevant when:

25,000 shares

Edie's Health and Beauty Supply has 125,000 shares of stock outstanding with a par value of $1 per share and a market value of $5 a share. The company has retained earnings of $76,500 and capital in excess of par of $340,000. The company just announced a 1-for-5 reverse stock split. How many shares of stock will be outstanding after the split?

$25.00

Edie's Health and Beauty Supply has 125,000 shares of stock outstanding with a par value of $1 per share and a market value of $5 a share. The company has retained earnings of $76,500 and capital in excess of par of $340,000. The company just announced a 1-for-5 reverse stock split. What will the market value per share be after the split?

$5.00

Edie's Health and Beauty Supply has 125,000 shares of stock outstanding with a par value of $1 per share and a market value of $5 a share. The company has retained earnings of $76,500 and capital in excess of par of $340,000. The company just announced a 1-for-5 reverse stock split. What will the par value per share be after the split?

are reluctant to cut dividends

Financial managers:

is more desirable than a cash dividend

From a tax-paying investor's point of view, a stock repurchase:

re-arrangement of the firm's dividend stream by investors buying or selling their holdings in the stock

Homemade dividends are described by Modigliani and Miller to be the:

I, II and IV only

If you ignore taxes and transaction costs, a stock repurchase will: I. reduce the total assets of a firm. II. increase the earnings per share. III. reduce the PE ratio more than an equivalent stock dividend. IV. reduce the total equity of a firm.

higher dividend policy

Ignoring capital gains as an alternative, the tax law changes in 2003 tend to favor a:

the number of shares outstanding decreases but owners' equity is unchanged

In a reverse stock split:

decrease by the amount of the dividend immediately on the ex-dividend date

In an efficient market, ignoring taxes and time value, the price of stock should:

leslie is entitled to the dividend but Marti is not

Leslie purchased 100 shares of GT, Inc. stock on Wednesday, June 7th. Marti purchased 100 shares of GT, Inc. stock on Thursday, July 8th. GT declared a dividend on June 20th to shareholders of record on July 12th and payable on August 1st. Which one of the following statements concerning the dividend paid on August 1st is correct given this information?

30,000 shares

Michael's Boating Supplies has 150,000 shares of stock outstanding with a par value of $1 per share and a market value of $10 a share. The company has retained earnings of $76,500 and capital in excess of par of $340,000. The company just announced a 1-for-5 reverse stock split. How many shares of stock will be outstanding after the split?

$50.00

Michael's Boating Supplies has 150,000 shares of stock outstanding with a par value of $1 per share and a market value of $10 a share. The company has retained earnings of $76,500 and capital in excess of par of $340,000. The company just announced a 1-for-5 reverse stock split. What will the market value per share be after the split?

$5.00

Michael's Boating Supplies has 150,000 shares of stock outstanding with a par value of $1 per share and a market value of $10 a share. The company has retained earnings of $76,500 and capital in excess of par of $340,000. The company just announced a 1-for-5 reverse stock split. What will the par value per share be after the split?

$7.27

Murphy's, Inc. has 10,000 shares of stock outstanding with a par value of $1.00 per share. The market value is $8 per share. The balance sheet shows $32,500 in the capital in excess of par account, $10,000 in the common stock account and $42,700 in the retained earnings account. The firm just announced a 10% (small) stock dividend. What will the market price per share be after the dividend?

$34,700

Murphy's, Inc. has 10,000 shares of stock outstanding with a par value of $1.00 per share. The market value is $8 per share. The balance sheet shows $32,500 in the capital in excess of par account, $10,000 in the common stock account, and $42,700 in the retained earnings account. The firm just announced a 10% (small) stock dividend. What will the balance in the retained earnings account be after the dividend?

issuing a stock dividend

Nu Tech, Inc. is a technology firm with good growth prospects. The firm wishes to do something to acknowledge the loyalty of its shareholders but needs all of its available cash to fund its rapid growth. The market price of its stock is currently trading in the middle of its preferred trading range. The firm could consider:

consistent dividend policy

Of the following factors, which one is considered to be the primary factor affecting a firm's dividend decision?

$780

On June 9th, you purchased 3,000 shares of SP stock. On July 5th, you sold 400 shares of this stock for $21 a share. You sold an additional 400 shares on July 18th at a price of $22.50 a share. The company declared a $.30 per share dividend on June 20th to holders of record as of July 10th. This dividend is payable on July 31st. How much dividend income will you receive on July 31st as a result of your ownership of SP stock?

$400

On May 18th, you purchased 1,000 shares of BuyLo stock. On June 5th, you sold 200 shares of this stock for $21 a share. You sold an additional 400 shares on July 8th at a price of $22.50 a share. The company declared a $.50 per share dividend on June 25th to holders of record as of Thursday, July 10th. This dividend is payable on July 31st. How much dividend income will you receive on July 31st as a result of your ownership of BuyLo stock?

zero because it happens on the ex-dividend date

On the date of record the stock price drop is:

distributions

Payments made by a firm to its owners from sources other than current or accumulated earnings are called:

dividends

Payments made out of a firm's earnings to its owners in the form of cash or stock are called:

$1.62

Priscilla owns 500 shares of Delta stock. It is January 1, 2006, and the company recently issued a statement that it will pay a $1.00 per share dividend on December 31, 2006 and a $.50 per share dividend on December 31, 2007. Priscilla does not want any dividend this year but does want as much dividend income as possible next year. Her required return on this stock is 12%. Ignoring taxes, what will Priscilla's homemade dividend per share be in 2007?

22,500 shares

Robinson's has 15,000 shares of stock outstanding with a par value of $1.00 per share and a market price of $36 a share. The balance sheet shows $15,000 in the common stock account, $315,000 in the capital in excess of par account, and $189,000 in the retained earnings account. The firm just announced a 3-for-2 stock split. How many shares of stock will be outstanding after the split?

$315,000

Robinson's has 15,000 shares of stock outstanding with a par value of $1.00 per share and a market price of $36 a share. The balance sheet shows $15,000 in the common stock account, $315,000 in the capital in excess of par account, and $189,000 in the retained earnings account. The firm just announced a 3-for-2 stock split. What will the capital in excess of par account value be after the split?

$24

Robinson's has 15,000 shares of stock outstanding with a par value of $1.00 per share and a market price of $36 a share. The balance sheet shows $15,000 in the common stock account, $315,000 in the capital in excess of par account, and $189,000 in the retained earnings account. The firm just announced a 3-for-2 stock split. What will the market price per share be after the split?

$15,000

Robinson's has 15,000 shares of stock outstanding with a par value of $1.00 per share and a market price of $36 a share. The balance sheet shows $15,000 in the common stock account, $315,000 in the capital in excess of par account, and $189,000 in the retained earnings account. The firm just announced a 3-for-2 stock split. What will the value of the common stock account be after the split?

$58,000

Samuel's has 7,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $12 per share. The balance sheet shows $7,000 in the common stock account, $58,000 in the capital in excess of par account and $32,500 in the retained earnings account. The firm just announced a 50% (large) stock dividend. What is the value of the capital in excess of par account after the dividend?

$10,500

Samuel's has 7,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $12 per share. The balance sheet shows $7,000 in the common stock account, $58,000 in the capital in excess of par account and $32,500 in the retained earnings account. The firm just announced a 50% (large) stock dividend. What is the value of the common stock account after the dividend?

$29,000

Samuel's has 7,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $12 per share. The balance sheet shows $7,000 in the common stock account, $58,000 in the capital in excess of par account and $32,500 in the retained earnings account. The firm just announced a 50% (large) stock dividend. What is the value of the retained earnings account after the dividend?

$8.00

Samuel's has 7,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $12 per share. The balance sheet shows $7,000 in the common stock account, $58,000 in the capital in excess of par account, and $32,500 in the retained earnings account. The firm just announced a 50% (large) stock dividend. What is the market value per share after the dividend?

3,200 shares

The common stock of Margot, Inc. is selling for $56 a share. The par value per share is $1. Currently, the firm has a total market value of $89,600. How many shares of stock will be outstanding if the firm does a 2-for-1 stock split?

ex-dividend

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.

date of record

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:

declaration

The date on which the board of directors passes a resolution authorizing payment of a dividend to the shareholders is the _____ date.

date of payment

The date on which the firm mails out its declared dividends is called the:

trading range

The difference between the highest and lowest prices at which a stock has traded is called its:

the investment policy is set before the dividend decision and not changed by dividend policy

The dividend-irrelevance proposition of Miller and Modigliani depends on the following relationship between investment policy and dividend policy:

maintaining a low dividend policy and rarely issuing extra dividends

The fact that flotation costs can be significant is justification for:

management believes that the future earnings of the firm will be strong

The information content of a dividend increase generally signals that:

three

The last date on which you can purchase shares of stock and still receive the dividend is the date _____ business day(s) prior to the date of record.

information content effect

The market's reaction to the announcement of a change in the firm's dividend payout is likely the:

clientele effect

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:

cash payout received by selling off shares to receive current dividends or purchasing additional shares with the dividends, as desired

The use of homemade dividends allows stockholders to change the:

I, II, III, and IV

Which of the following are factors that favor a high dividend policy? I. Stockholders desire for current income II. Tendency for higher stock prices for high dividend paying firms III. Investor dislike of uncertainty IV. High percentage of tax-exempt institutional stockholders

I, II, and IV only

Which of the following are valid reasons for a firm to reduce or eliminate its cash dividends? I. The firm is on the verge of violating a bond restriction which requires a current ratio of 1.8 or higher. II. A firm has just received a patent on a new product for which there is strong market demand and it needs the funds to bring the product to the marketplace. III. The firm can raise new capital easily at a very low cost. IV. The tax laws have recently changed such that dividends are taxed at an investor's marginal rate while capital gains are tax exempt.

declaration date, ex-dividend date, date of record

Which of the following lists events in chronological order from earliest to latest?

I, II, III, and IV

Which of the following may tend to keep dividends low? I. A state law restricting dividends in excess of retained earnings II. A term contained in bond indenture agreements III. The desire to maintain constant dividends over time IV. Flotation costs

II, III, and IV only

Which of the following tend to increase the appeal of a firm's stock to the average investor? I. A cessation of dividends by a firm which has a long history of increasing dividends II. The distribution of a special dividend by a dividend-paying firm III. A reverse stock split for a low-priced stock IV. The declaration of a stock dividend by a growth firm

the tax on capital gains is deferred until the gain is realized

Which one of the following is an argument in favor of a low dividend policy?

stock split

Wydex, Inc. stock is currently trading at $82 a share. The firm feels that its primary clientele can afford to spend between $2,000 and $2,500 to purchase a round lot of 100 shares. The firm should consider a:

$1.48

You own 200 shares of Loner, Inc. stock. The company has stated that it plans on issuing a dividend of $.20 a share one year from today and then issuing a final liquidating dividend of $1.60 a share two years from today. Your required rate of return is 11%. Ignoring taxes, what is the value of one share of this stock today?

$2.40

You own 300 shares of Abco, Inc. stock. The company has stated that it plans on issuing a dividend of $.60 a share one year from today and then issuing a final liquidating dividend of $2.20 a share two years from today. Your required rate of return is 9%. Ignoring taxes, what is the value of one share of this stock today?

210;0

You owned 200 shares last year and received a stock dividend of 5% at the end of last year. The number of shares you now have is _____ and your wealth has increased by ______%.

$330

You purchased 200 shares of ABC stock on July 15th. On July 20th, you purchased another 100 shares and then on July 22st you purchased your final 200 shares of ABC stock. The company declared a dividend of $1.10 a share on July 5th to holders of record on Friday, July 23rd. The dividend is payable on July 31st. How much dividend income will you receive on July 31st from ABC?

all of these

Characteristics of a sensible dividend policy include:

adjust the market of a stock such that it falls within a preferred trading range

Stock splits are often used to:

retained earnings will decrease by $187,500

The Cameron Co. is paying a $0.75 per share dividend today. There are 250,000 shares outstanding with a par value of $1.00 per share. As a result of this dividend, the:

retained earnings will decrease by $150,000

The KatyDid Co. is paying a $1.25 per share dividend today. There are 120,000 shares outstanding with a par value of $1.00 per share. As a result of this dividend, the:

$60.00

The Rent It Company declared a dividend of $.60 a share on October 20th to holders of record on Monday, November 1st. The dividend is payable on December 1st. You purchased 100 shares of Rent It Company stock on Wednesday, October 27th. How much dividend income will you receive on December 1st from the Rent It Company?

$6,000

The Retail Outlet has 6,000 shares of stock outstanding with a par value of $1.00 per share. The current market value of the firm is $420,000. The balance sheet shows a capital in excess of par account value of $136,000 and retained earnings of $234,000. The company just announced a 2-for-1 stock split. What will the common stock account balance be after the split?

$35

The Retail Outlet has 6,000 shares of stock outstanding with a par value of $1.00 per share. The current market value of the firm is $420,000. The balance sheet shows a capital in excess of par account value of $136,000 and retained earnings of $234,000. The company just announced a 2-for-1 stock split. What will the market price per share be after the split?

$234,000

The Retail Outlet has 6,000 shares of stock outstanding with a par value of $1.00 per share. The current market value of the firm is $420,000. The balance sheet shows a capital in excess of par account value of $136,000 and retained earnings of $234,000. The company just announced a 2-for-1 stock split. What will the retained earnings account balance be after the split?

208,333 shares

The Tinslow Co. has 125,000 shares of stock outstanding at a market price of $93 a share. The company has just announced a 5-for-3 stock split. How many shares of stock will be outstanding after the split?

$39.86

The Tinslow Co. has 125,000 shares of stock outstanding at a market price of $93 a share. The company has just announced a 7-for-3 stock split. What will the market price per share be after the split?

homemade dividends

The ability of shareholders to undo the dividend policy of the firm and create an alternative dividend payment policy via reinvesting dividends or selling shares of stock is called (a):