FIN3403 Ch14 LearnSmart

Select all that apply Which of the following is true about stock dividends and stock splits?

- Both will increase the total number of shares. - Both will reduce the share price.

Select all that apply Which of the following is(are) true relative to dividends?

- Dividend increases tend to lag earnings increases. - Dividend stability is important. - Investors will view a dividend cut as bad news.

Select all that apply Which of the following are positives of paying dividends?

- Stock price usually increases with the announcement of a new or increased dividend. - Cash dividends can underscore good results.

Select all that apply Accounting for the time value of money, which of the following is true of an increase in dividend payout at a point in time?

- The net effect is zero. - It is exactly offset by a decrease somewhere else.

Select all that apply A reverse stock split results in

- a higher share price - an investor owning fewer shares

Select all that apply Which of the following involves a firm distributing stock instead of cash to its owners?

- a stock split - a stock dividend

Select all that apply A stock dividend will result in which of the following?

- an increase in shares outstanding - a decrease in the value per share

Select all that apply Dividends received by shareholders can be expressed in which of the following ways?

- dividend payout - dividend yield - dividends per share

Select all that apply Which of the following are factors which favor a low dividend payout?

- flotation costs - bond covenant restrictions - tax laws

Select all that apply A firm that pays cash dividends is signaling ______ and ______.

- it is not hoarding too much cash - it expects to continue to be profitable

Select all that apply Which of the following might be tax-exempt investors?

- pension funds - trust funds - university endowment funds

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

- share repurchase - dividends

Select all that apply Which of the following are forms of cash dividends?

- special dividends - regular cash dividends - extra dividends - liquidating dividends

Select all that apply A company may consider a reverse stock split for which of the following reasons?

- to increase liquidity - to meet exchange listing requirements - to increase the share price to a "respectable" level - to reduce transaction costs to investors

In 2010, 80% of the aggregate dividends from U.S. companies were paid by ______.

100 large firms

True or false: Dividend payments are concentrated in a large set of small firms.

False Dividend payments are concentrated in a small set of large firms.

True or false: Dividends are irrelevant.

False Dividends are relevant. However, dividend policy is irrelevant (in a world without frictions such as taxes or flotation costs) because firm value is unaffected.

True or false: Under current law, a repurchase has not advantage over a cash dividend.

False has significant advantage

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

The price will fall.

True or false: A firm will often split the stock to keep the stock price within a proper trading range.

True

True or false: An important thing that we know about dividends is that stock prices typically react to unexpected changes in dividends.

True

True or false: Flotation costs may reduce the payout for some firms.

True

True or false: If there are no imperfections, then a cash dividend and a share repurchase are essentially the same thing.

True

True or false: One disadvantage of dividends is that they are taxed to recipients.

True

True or false: Dividend policy is irrelevant.

True Dividend policy merely establishes the trade-off between dividends at one date and dividends at another date.

According to the clientele effect, can a firm boost its share price by raising dividends?

Yes, but only if an unsatisfied clientele exists.

In the United States, dividends have historically been taxed at ______ rate compared with capital gains.

a higher

The dividend policy question addresses whether the firm should payout:

a larger or smaller percentage of its earnings now.

If there are no taxes or flotation costs, then investors will ______.

be indifferent between dividends and a repurchase

A firm's ability to pay dividends may be restricted by:

covenants in a bond indenture.

A(n) ______ occurs whenever a firm makes a payment to its owners from a source other than current or accumulated retained earnings.

distribution

When a payment is made from a firm's earnings to its owners in the form of cash, it is called a _____.

dividend

A strong argument can be made that:

dividend policy does not matter.

In order to receive a dividend, a stockholder must purchase stock before a certain date. That date is called the ______.

ex-dividend date

The date that establishes those individuals entitled to a declared dividend is called the ______.

ex-dividend date

According to the survey discussed in the text, which of the following is of very little importance to managers in setting dividend policy?

flotation costs to issue new equity

To a tax-paying stockholder, a stock repurchase ______.

has significant tax advantages compared to a cash dividend

A stock split is a(n) _____ in a firm's shares outstanding without any change in owners' equity.

increase

Earnings per share will _____ and total earnings will remain unchanged under a share repurchase.

increase

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.

A stock dividend is not a true dividend because ______.

it is not paid in cash

The _____ effect arises because older, large firms are unwilling to cut dividends.

legacy

Flotation costs may _____ the payout for firms.

lower

According to the survey discussed in the text, the highest priority for financial managers is to ______.

maintain a consistent dividend policy

With a share repurchase, earnings per share will increase, and total earnings will ______.

not change

When a firm authorizes a trustee to repurchase shares as they become available, they are using a(n) ______ purchase technique.

open market

In the United States, dividends received have historically been taxed as ______.

ordinary income

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

payment date.

Relatively young firms should consider a dividend policy aimed at ______ .

retaining earnings to reinvest in the firm

A dividend can be in the form of cash or ______.

shares of common stock

Dividends are heavily concentrated among a relatively _____ number of _____, mature firms.

small; large

An alternative way to pay out a firm's earnings to shareholders instead of cash dividends is a ______.

stock repurchase

A university endowment fund might prefer high-dividend-paying stocks since it is usually ______.

tax-exempt

Which of the following investors might prefer a high dividend payout?

tax-exempt investors

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 referred to as a ______.

tender offer

The concept that stocks attract certain investors due to a firm's dividend policy and the resulting tax impact is called ______.

the clientele effect

Which of the following is considered to be the main factor influencing a firm's dividend decision?

the consistency of its dividend policy

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

the legacy effect

Dividend policy can best be described as the:

the time pattern of dividend payout

The basic question of dividend policy is the choice of ______.

the time pattern of dividend payout

A stock split increases the number of outstanding shares, while ______.

the total owners' equity remains constant

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

trading range

A dividend ______ is calculated as a percentage of the stock's market price.

yield