Financial Management & Policy - Ch 17

In 2000, 80% of the aggregate dividends from US companies were paid by:

**100 large firms -532 large firms -100 small firms -10,000 firms

The dividend policy question addresses whether the firm should payout:

**a larger or smaller percentage of its earnings now -a cash dividend or a distribution -a cash dividend or a stock dividend -a stock split or a share repurchase

Which of the following is true about stock dividends and stock splits?

**both will reduce the share price **both will increase the total number of shares -both will increase the share price -both will reduce the total number of shares

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 -amount of the dividends paid per share by the issuer -return earned by the shareholder on their stock by increasing the value of each share

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

**covenants in a bond indenture -investment strategies of the firm's stockholders -social constraint -stock covenants

The date on which the company passes a resolution to pay a dividend is called the _____ date.

**declaration

Flotation costs will:

**decrease the value of stock -increase the value of stock -not affect the value of stock

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

**dividend -stock split -distribution -payment in kind

A strong argument can be made that:

**dividend policy does not matter -stock dividends are better than cash dividends -dividends should be paid to bondholders -dividends should never be paid to shareholders

Dividends received by shareholders are expressed in which of the following way?

**dividend yield **dividends per share **dividend payout -dividends per shareholder

Which of the following are advantages of paying dividends?

**dividends may attract institutional investors -dividend cuts are easy to make and do not adversely affect the stock price -stock price does not react to announcement of a new or increased dividend -dividends are not taxed to recipients

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

**ex-dividend date -declaration date -date of record -date of payment

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

**fall -freeze -rise -gyrate

Which of the following factors might lead a firm to prefer a low dividend payout?

**flotation costs **taxes -myopic investors -high EPS

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

**has significant tax advantages compared to a cash dividend -generates a slightly higher tax liability than a cash dividend -generates the same tax liability as a cash dividend -has significant disadvantages compared to a cash dividend

A one-for-five reverse stock split will ____.

**increase a $1 par value to $5 -increase the par value by 25% -increase a $1 par value by $5 -increase the number of shares by 400%

In a perfect market, stockholders are _____ between a stock _____ and a cash _____.

**indifferent; repurchase; dividend -indifferent; repurchase; bond repurchase -indifferent; dividend; repurchase

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 -engage in excess perquisite consumption -pay it out to executives -fund nonprofit organizations

Which of the following are reasons why investors might favor a high-dividend payout?

**investors have a preference for current income **the transaction costs for selling low dividend paying stocks can be avoided **stock sales are time consuming -low brokerage fees make it easier to sell stock

With a 2-for-1 stock split, the number of shares are doubled and the par value:

**is cut in half -changes randomly -remains unchanged -doubles

A stock dividend is not a true dividend because:

**it is not paid in cash -it enhances the value of each outstanding share -it is expressed as a ratio instead of a percentage

According to a recent survey, the highest priority for financial managers is to

**maintain a consistent dividend policy -reduce dividend payments over time -pay higher dividend than competitors -make dividends irrelevant

The information content of a dividend decrease may be that _____.

**management believes future earnings will decline -future dividends will be higher -management does not want to hold cash -management believes future earnings will rise

With a share repurchase, earnings per share will increase, and total earnings will:

**not change -increase -decrease -fluctuate randomly

In the United States, dividends received have historically be taxed as:

**ordinary income -capital gains -fair share income -unearned income

A firm should avoid cutting _____ NPV projects to pay dividends or buy back shares.

**positive -zero -negative -all

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

**share repurchase **dividends -stock splits -stock dividends

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

**stock -assets -bonds

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

**stock split -tender offer -special dividend -share repurchase

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 -targeted repurchase -reverse split -open market purchase

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

**the consistency of its dividend policy -the personal taxes of stockholders -attracting institutional investors -attracting retail investors

According Graham, Dodd, and Cottle, firms should generally have a high dividend payout because:

**the discounted value of near dividends is greater than the discounted value of distant dividends **everything else being equal, firms that pay higher dividends usually sell at a higher price -shareholders always prefer dividends over growth -firms with high dividend payouts fail at nearly three times the rate of firms with low dividend payouts

When a firm declares a change in its dividend payout, the reaction in the market is called:

**the information content effect -the efficient market hypothesis -MM Proposition I -MM Proposition II

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

**the legacy effect -dividend signaling -dividend smoothing -the information content effect of dividends

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

**the total owners' equity remains constant -the total owners' equity decreases -the stock price increases -the firm's value increases

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

**trading range -average price -closing price -opening price

Which of the following might be tax-exempt investors?

**trust funds **pension funds **university endowment funds -fortune 500 corporations

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

**yes, but only if an unsatisfied clientele exists -no, investors are indifferent to dividend policy -no, not according to the clientele effect -yes, investors will always respond to a high dividend

True or false: Because of dividend irrelevance, the stock market does not react to unanticipated changes in dividend.

false

True or false: Dividends are irrelevant.

false