Finance 17& 18

Ch 18 Current earnings, as an indicator of liquidity, has limitations. For example, a growth firm producing the greatest gains in earnings may be in the Blank______cash position.

Poorest

Ch 18 It can be hypothesized that stockholders' might apply a Blank______ discount rate and assign a Blank______ valuation to retained earnings as opposed to dividends.

higher, lower

Ch 18 Most states prohibit the payment of dividends that would impair the

initial capital contributions

Ch 17 A poison pill defense: (Check all that apply>)

is triggered when a hostile bidder manages to acquire a specified percentage. has the goal of watering down the shares and scaring off the potential buyer. has the price for all other shareholders drop dramatically (hostile bidder is blocked from purchasing these shares).

Ch 18 After the passage of the Jobs and Growth Tax Relief Act of 2003, dividends were taxed at a maximum rate of Blank______ and capital gains at a maximum rate of Blank______.

15%, 15%

Ch 18 A firm's stock is currently selling for $25 per share, the annual dividend is $1.00, and expected earnings are $5.00 per share. What is the firm's dividend payout ratio?

20%

Ch 18 Prior to the passage of the Jobs and Growth Tax Relief Act of 2003, dividends were taxed at a maximum rate of Blank______ and capital gains at a maximum rate of Blank______.

39.6%, 20%

Ch 18 A firm's stock is currently selling for $25 per share, the annual dividend is $1.00, and expected earnings are $5.00 per share. What is the firm's dividend yield?

4%

Ch 18 Which factor(s) influence dividend policy?

Cash position of the firm Tax position of stockholders Access to capital markets

Ch 17 How are preferred stock dividends and interest treated for taxation purposes?

Interest is tax deductible and preferred dividends do not reduce taxable income.

Ch 17 A poison pill is also known as Blank______.

a shareholder rights plan

Ch 17 The number of shares that can be purchased in the rights offering is Blank______

based on the number of shares the investor currently owns.

Ch 18 Stock dividends are used by

growth companies companies ineffective in generating cash flows

Ch 17 As the owners of the firm, common stockholders have the right to vote for the

board of directors major issues of the company

Ch 17 A proxy provides management or some outside contesting group with the power to

cast the common stockholder's ballot

Ch 18 A plan that provides the investors of the company the opportunity to buy additional shares of stock with cash dividends paid by the company is a

dividend reinvestment plan

Ch 17 The common stockholders' residual claim to the income can take the form of

dividends retained earnings

Ch 17 In a rights offering, when an existing shareholder is notified that they have been given one right for each share owned, they can do which of the following?

do nothing and let the rights expire order all the rights to be sold subscribe to the full number of entitled shares

Ch 17 How is preferred stock classified for tax purposes?

equity

Ch.17 A rights offering grants Blank______.

existing shareholders the right to buy new shares

Ch 18 The opportunity cost of using stockholder funds is known as

marginal principle of retained earnings

ch 18 According to legal rules, dividends may be distributed from

past earnings current earnings

Ch 17 If a company has cumulative preferred stock in its capital structure and it has not paid preferred and common dividends in 3 years, it must Blank______.

pay three years of preferred dividends before it can pay a common dividend

Ch 17 Preemptive rights protect the shareholder by Blank______.

providing the opportunity for current shareholders to participate in new equity issues.

Ch 18 Dividend reinvestment plans enable a firm's stockholders to use cash dividends to

purchase additional shares of stock

Ch 18 All of the following influence dividend policy except

pure bond valuations

Ch 17 A company that issues preferred stock is attempting to Blank______.

raise capital without diluting current stockholders or taking on more debt

Ch. 17 A participation provision allows preferred stock holders to Blank______.

receive additional dividends after the common dividends equal preferred dividends

Ch. 17 All income remaining after paying the creditors and preferred stockholders is referred to as the common stockholders'

residual claim to income

Ch 18 Stock dividends are used by growth companies as a form of "informational content" in explaining the

retention of funds for reinvestment purposes

Ch 18 A primary factor in considering stockholder preferences with respect to dividend policy is the maintenance of

stability in dividend payments

Ch 18 Corporate management must not only ask, "How many profitable investments do we have this year?" They must also ask, "What has been the pattern of dividend payments in the last few years?" These questions relate to the

stability of dividend payments

Ch 18 A distribution of additional shares to common stockholders is called a

stock dividend