Chapter 17 Finance 3400

Dividends received by shareholders are expressed in which of the following ways

-Dividend yield -dividends per share -dividend payout

A firm can pay out its cash earnings to its shareholders in which of the following ways?

-Dividends -Share repurchases

Which of the following sensible payout policies

-Set a consistent payout policy -Overtime, pay out all free cash flows -Avoid cutting positive NPV projects to pay dividends

which of the following are reasons why investors might favor a high paying dividend

-Stock sales are time consuming -investors have a preference of current income -the transaction costs for selling low dividend paying stocks can be avoided

what is true of stock dividends and stock splits?

-both will increase the total number of shares -both will reduce the share price

According to graham, Dodd, and cottle, Firms should generally have a high dividend payout because

-the discounted value of near dividends is greater than the discounted value of distant dividends -everything else being equal, firms that pay higher dividends usually sell at a higher price

Which of the following are reasons for reverse stock splits?

-to comply with listing requirements -to raise stock prices to respectable levels -to eliminate small shareholders

A firms ability to payout dividends may be restricted by

Covenants in the bond indenture

The date on which the company passes a resolution to pay a dividend is called the _______ date

Deceleration date

Flotation costs will:

Decrease in value of stock

A strong argument can be made that

Dividend policy doesn't matter

Which of the following are advantages of paying dividends?

Dividends may attract institutional investors

True or false: because of dividend irrelevance, the stock market does not react to unanticipated changes in dividend

False

to a tax-paying stockholder, a stock repurchase generally_____

Has significant tax advantages compared to a cash dividend

According to a recent survey, the highest priority for financial managers is to

Maintain a constant dividend payout policy

in the United states, dividends received have historically been taxed as

Ordinary income

Which of the following must be tax-exempt investors

Pension funds trust funds university growth funds

A firm should avoid cutting _____ NPV projects to pay dividends or buy back shares

Positive

A dividend can be in the form of cash or

Stock

A ______ _____ causes the number of common shares outstanding to increase but leaves the total owners equity unchanged.

Stock Split

An alternative way to pay out a firms earnings to shareholders instead of a cash dividend is

Stock repurchase

Which of the following factors might lead to a firm to prefer a lower dividend

Taxes flotation Costs

the concept that stocks attract certain investors due to a firms payout policy, and the resulting tax impact is called

The clientele effect

Which of the following is considered to be influencing a firms dividend decision

The consistency of its dividend policy

What is likely to happen to the share price if the company issues a stock dividend

The price will fall

a dividend _____ is the amount of the dividend expressed as a percentage of the stocks market price

Yield

The dividend policy question addresses whether the firm should payout

a larger or smaller percentage of its earnings now

homemade dividends allow a stockholder to change the

cash payout received by selling shares to receive current cash or purchasing additional shares to reduce current cash

in order to receive a dividend, a stockholder must purchase stock before a certain date. that date is called

ex-dividend date

A stocks price will _______ when the ex-dividend date arrives

fall

True or false: Dividends are irrelevant

false

A one-for-five reverse stock split will

increase a $1 par value to $5

in a perfect market stockholders are__________ between a stock _______ and a __________.

indifferent; repurchase; dividend

The crux of dividend policy is whether the firm should pay out money to its shareholders or take that money and:

invest it for shareholders

with a 2-for-1 stock split, the # of shares are doubled and the par value

is cut in half

The information content of a dividend decrease may be that

management believes future earnings will decline

with a share repurchase, earnings per share will increase, and total earnings will

not change

A(n) _______ repurchase occurs when a firm repurchases shares from specific individual stockholders

targeted

When a firm announces to all of its stockholders that it is willing to buy a fixed number of shares at a specific price, it is refered to as a

tender offer

when a firm declares a change in its dividend payout, the reaction in the market is called

the information content effect

The unwillingness of many older, giant firms cut dividends referred to as

the legacy effect

what is the likely impact on a stock's price when dividends are paid

the price will fall

A stock split increase the number of outstanding shares, with

the total owners equity remains constant

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

trading range