Fnan 522 Mod 6

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A company wants to implement a capital growth policy. In the current year it had $10 million in net income. How much income should it distribute in dividends in order to pursue this strategy?

1 mil

Which of the following is a method of payment a corporation can use to pay a dividend?

a. All of these answers. Correct b. Stock. c. Cash. d. Securities of other companies correct: all of the above

Which of the following is a reason a company might have for initiating a reverse stock split?

a. All of these answers. Correct b. To encourage institutional investors and mutual funds to purchase the stock. c. To decrease the number of its shareholders. d. To prevent the stock from being delisted from a stock exchange. correct answer: A

The Modigliani-Miller theory suggests that it doesn't matter to a shareholder whether a company issues dividends. Why might that theory not be applicable to the US stock market as it currently exists?

a. Changes in dividend policy may indicate a change in the company's investment policy. b. All of these answers. Correct c. There are transaction costs associated with trading stock. d. Dividends and share repurchases are taxed at different rates. Correct: B

Which of the following is a possible market reaction to a company's announcement that it will increase it's quarterly dividend?

a. The share price may increase because the increased dividend signals that future earnings will be higher than the market currently expects. Correct

Which of the following is a possible market reaction to an stock repurchase announcement?

a. The stock price may fall because the repurchase signals that the company's future earnings may not be as high as the market currently expects. b. All of these answers. Correct c. The stock price may increase because the repurchase signals that the company views the shares as currently undervalued. d. The share price may increase because the repurchase signals that the company is shifting to a higher degree of leverage to maximize returns to shareholders. correct: B

Which of the following is an element of a company's dividend policy?

a. Whether the company pays dividends at all. b. Whether dividends are paid out in cash or stock. c. All of these answers. Correct d. How often the company pays dividends. correct: C all

Under the Modigliani-Miller theorem in finance, the value of a company depends on:

a. the competitive situation of the company and the projects that the company undertakes and plans. Correct

Which of the following is an accurate description of one of the dates related to issuing dividends.

b. The declaration date is the day the board of directors announces it will pay a dividend. Correct

Which of the following changes after a stock splits?

c. The stock's per share price. Correct

Which of the following repurchasing method definitions is NOT correct?

d. Repurchase Put Rights: The firm announces that it will repurchase a number of shares at a set price. Correct

Which of the following is a benefit shareholders can obtain by repurchasing its shares?

d. Shareholders have a higher percent ownership in the company at a higher per share price. Correct

Which of the following statements regarding what dividends can mean to prospective investors is true?

d. Stocks with consistently high dividends tend to mitigate agency conflicts between investors and firm management Correct

In which of the following situations would a shareholder prefer to receive stock dividends as opposed to cash dividends?

d. The investor is looking to own shares in the company for a long period of time. Correct

A company made $10 million in revenue, recorded $2 million in net income, and paid $750,000 in dividends last year. What was the company's pay out ratio last year?

total div/net income net come is as it says 2 mil 750,000/2000000= 37.5%


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