Adv. Fina ch.19

Which of the following may tend to keep dividends low?I. A state law restricting dividends in excess of retained earningsII. A term contained in bond indenture agreementsIII. The desire to maintain constant dividends over timeIV. Flotation costs Multiple Choice II and III only I and IV only II, III, and IV only I, II, and III only I, II, III, and IV

1-4

Which of the following lists events in chronological order from earliest to latest? Multiple Choice Date of record, declaration date, ex-dividend date. Date of record, ex-dividend date, declaration date. Declaration date, date of record, ex-dividend date. Declaration date, ex-dividend date, date of record. Ex-dividend date, date of record, declaration date.

Declaration date, ex-dividend date, date of record.

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. Multiple Choice I and III only II and IV only II, III, and IV only I, II, and IV only Correct I, II, III, and IV

I, II, 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 dividendsII. The distribution of a special dividend by a dividend-paying firmIII. A reverse stock split for a low-priced stockIV. The declaration of a stock dividend by a growth firm Multiple Choice I and III only II and IV only I, II, and IV only II, III, and IV only I, II, III, and IV

II, III, and IV only

Which one of the following is an argument in favor of a low dividend policy? Multiple Choice The tax on capital gains is deferred until the gain is realized. Few, if any, positive net present value projects are available to the firm. A preponderance of stockholders have minimal taxable income. A majority of stockholders have other investment opportunities that offer higher rewards with similar risk characteristics. Corporate tax rates exceed personal tax rates.

The tax on capital gains is deferred until the gain is realized. Correct

A cash payment made by a firm to its owners when some of the firm's assets are sold off is called a: liquidating dividend. Correct regular cash dividend. special dividend. extra cash dividend. share repurchase.

a

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. Multiple Choice ex-rights ex-dividend Correct record payment declaration

b

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: Multiple Choice information content effect. clientele effect. Correct efficient markets hypothesis. MM Proposition I. MM Proposition II.

clientele effect

An investor is more likely to prefer a high dividend payout if a firm: Multiple Choice has high flotation costs. has few, if any, positive net present value projects. has lower tax rates than the investor. has a stock price that is increasing rapidly. offers high capital gains which are taxed at a favorable rate.

has few, if any, positive net present value projects.

The market's reaction to the announcement of a change in the firm's dividend payout is likely the: Multiple Choice information content effect. Correct clientele effect. efficient markets hypothesis. MM Proposition I. MM Proposition II.

information content effect.

From a tax-paying investor's point of view, a stock repurchase: Multiple Choice is equivalent to a cash dividend. is more desirable than a cash dividend. has the same tax effects as a cash dividend. is more highly taxed than a cash dividend. creates a tax liability even if the investor does not sell any of the shares he owns.

is more desirable than a cash dividend.

The information content of a dividend increase generally signals that: Multiple Choice the firm has a one-time surplus of cash. the firm has few, if any, net present value projects to pursue. management believes that the future earnings of the firm will be strong. the firm has more cash than it needs due to sales declines. future dividends will be lower.

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

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

stock

An increase in a firm's number of shares outstanding without any change in owners' equity is called a: Multiple Choice special dividend. stock split. Correct share repurchase. tender offer. liquidating dividend.

stock split

All else equal, the market value of a stock will tend to decrease by roughly the amount of the dividend on the: dividend declaration date. ex-dividend date. Correct date of record. date of payment. day after the date of payment.

x- div