FIN 462 - CH 17

You own 300 shares of Omega Co. with a value of $10 per share. As a result of a 2-for-1 stock split, you now own 600 shares and your wealth has increased by ___.

$0

According to Graham, Dodd, and Cottle, firms should generally have a high dividend payout because _____. - everything else being equal, firms that pay higher dividends usually sell at a higher price - shareholders always prefer dividends over growth - the discounted value of near dividends is greater than the discounted value of distant dividends - firms with high dividend payouts fail at nearly three times the rate of firms with low dividend payouts

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

Which of the following is not a type of tax-exempt investor?

A public for-profit corporation

Which of the following is true about stock dividends and stock splits? Both will reduce the share price Both will increase the share price Both will reduce the total number of shares Both will increase the total number of shares

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

Dividends received by shareholders are expressed in which of the following ways? Dividend payout Dividends per share Dividend yield Dividends per shareholder

Dividend payout Dividends per share Dividend yield

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

According to Graham, Dodd, and Cottle, which of the following is not a reason why firms should generally have a high dividend payout?

Firms with high dividend payouts typically go bankrupt at a higher rate than firms that do not.

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

Not change

Which of the following might be tax-exempt investors? Fortune 500 corporations Pension funds Trust funds University endowment funds

Pension funds Trust funds University endowment funds

A firm can pay out its cash earnings to its shareholders in which of the following ways? Share repurchase Stock dividends Dividends Stock splits

Share repurchase Dividends

Which question lies at the heart of dividend policy?

Should the firm pay out money to its shareholders or invest the money back into the company?

Which of the following involves a firm distributing stock instead of cash to its owners? Stock dividend Bond split Bond dividend Stock split

Stock dividend Stock split

Which of the following usually occur with a stock dividend? Stock prices rise. The number of shares increase. The price per share falls. No cash leaves the firm.

The number of shares increase. The price per share falls. No cash leaves the firm.

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

The price will fall.

Which of the following are reasons for reverse stock splits? To comply with listing requirements To raise stock prices to respectable levels To lower the par value per share To eliminate small shareholders

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

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

True

A 1-for-5 reverse stock split will increase ___.

a $1 par value to $5

In a repurchase, a shareholder pays taxes only if the shareholder _____.

actually chooses to sell and the shareholder has a capital gain on the sale

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

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

covenants in a bond indenture

The date the firm mails out its declared dividends is called the ___.

date of payment

Flotation costs will _____ the value of the stock.

decrease

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

A stock's price will ______ when the ex-dividend date arrives.

fall

A regular cash dividend is commonly paid _____ times per year.

four

To a tax-paying stockholder, a stock repurchase generally ___.

has significant tax advantages compared to a cash dividend

A(n) _____ dividend policy is created by individual investors who undo corporate dividend policy by reinvesting dividends or selling shares of stock.

homemade

A bond ___ is a covenant prohibiting dividend payments above some level.

indenture

In a perfect market, stockholders are ________ between a stock _______ and a cash _________.

indifferent; repurchase; dividend

With a 2-for-1 stock split, the number of shares is doubled and the par value _____.

is cut in half

A stock dividend is not a true dividend because it _____.

is not paid in cash

The dividend policy question addresses whether the firm should pay out a _____.

larger or smaller percentage of its earnings now

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

ordinary income

With a share ___, the number of outstanding shares decreases, while there is no impact on the total earnings, so EPS rises.

repurchase

If the dividend per share at a given date is raised and the dividends and other factors at every other date remain the same, then the stock price will ___.

rise

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

stock

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

stock repurchase

A ____ causes the number of common shares outstanding to increase but leaves total owner's equity unchanged.

stock split

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 referred to as a _____.

tender offer

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

total owners' equity remains constant

The ___ range is the price range between the highest and lowest prices at which the stock is bought and sold.

trading

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

trading range

A dividend ______ is the amount of the dividend expressed as a percentage of the stock's market price,

yield