公司理财精要题库.doc

Chapter 14 - Dividends and Dividend Policy
Chapter 14
Dividends and Dividend Policy

Multiple Choice Questions

1. Which one of the following is a payment of either cash or shares of stock that is paid out of earnings to a firm's shareholders? 
A. Interest
B. Distribution
C. Retained earnings
D. Dividend
E. Stock repurchase

2. Which one of the following is a payment by a firm to its shareholders from any source other than current or accumulated retained earnings? 
A. Interest
B. Distribution
C. Retained earnings
D. Dividend
E. Stock repurchase

3. Which one of the following best defines a regular cash dividend? 
A. Distribution by a firm to its shareholders
B. Payment from any source by a firm to its owners
C. One-time payment of cash by a firm to its shareholders
D. Cash payment by a firm to its owners as part of a firm's normal operations
E. Distribution of the proceeds from the sale of a portion of a firm's operations

4. Which one of the following is the date on which the board of directors agrees to pay a dividend and passes a resolution to do so? 
A. Date of record
B. Ex-dividend date
C. Payment date
D. Declaration date
E. Public announcement date

5. The ex-dividend date is defined as _____ day(s) before the date of record. 
A. three business
B. three
C. two business
D. two
E. one

6. On which one of the following dates is the determination made as to which shareholders will receive a dividend payment? 
A. Date of record
B. Ex-dividend date
C. Payment date
D. Declaration date
E. Public announcement date

7. On which one of the following dates are dividend checks mailed? 
A. Date of record
B. Ex-dividend date
C. Payment date
D. Declaration date
E. Public announcement date

8. The clientele effect states that investors fall into various groups because of differences in their preferences for which one of the following? 
A. Share price levels
B. Risk level
C. Short-term versus long-term investments
D. Rates of return
E. Dividends

9. This morning, Lambert Materials bought 10,000 of its outstanding shares in the open market. What type of transaction was this? 
A. Stock payout
B. Stock distribution
C. Stock dividend
D. Stock repurchase
E. Stock reversal

10. Which one of the following is a non-cash payment made by a firm to its shareholders and is a payment that lessens the value of each outstanding share? 
A. Reverse stock split
B. Cash distribution
C. Stock dividend
D. Regular dividend
E. Liquidating dividend

11. Which one of the following increases the number of shares outstanding but does not increase the value of owner's equity? 
A. Stock repurchase
B. Reverse stock split
C. Stock split
D. Cash distribution
E. Liquidating dividend

12. During the past year, ABC stock has sold for as little as $19 a share and a much as $33 a share. Which one of the following terms applies to these prices? 
A. Benchmark values
B. Price splits
C. Price dividers
D. Split range
E. Trading range

13. Which one of the following reduces the number of shares outstanding but does not change a firm's total equity? 
A. Stock split
B. Distribution
C. Reverse split
D. Liquidation
E. Redemption

14. Lester's Dry Goods paid $1.10 per share in dividends last year. The company currently has excess cash and would like to distribute $0.40 a share to its shareholders. However, the company is concerned about increasing the dividend by that amount as it will not be able to afford any increase in the future and doesn't want to lower the dividend once it has been raised. Which one of the following is probably the best suggestion for distributing the $0.40 per share? 
A. Special dividend of $0.40 per share
B. Extra cash dividend of $0.40 per share
C. Liquidating dividend of $0.40 per share
D. Increase the regular dividend by $0.11 and pay a special dividend of $0.29
E. Increase the regular dividend by $0.11 and pay an extra cash dividend of $0.29

15. Downtown Merchants has paid a quarterly dividend of $0.60 per share for the past two years. This quarter, the firm plans to pay $0.60 plus an additional $0.05. The firm has stated that it uncertain whether it will pay $0.60 or $0.65 per share next quarter. Which one of the following is the best description of the additional $0.05 that is being paid this quarter? 
A. Liquidating dividend
B. Special dividend
C. Extra dividend
D. Stock dividend
E. Normal dividend

16. Which one of the following is an example of a liquidating dividend? 
A. Valley Feed Mills recently sold its grain storage facility and is distributing the proceeds of that sale to its shareholders.
B. Kate's Winery has excess cash that it wishes to distribute to its shareholders in addition to its normal cash dividend. This extra distribution usually occurs about once every year.
C. Kurt's Music is planning to increase its quarterly dividend by three percent.
D. The Dried Florist is preparing to pay its first annual dividend of $0.08 per share.
E. Hi Tek had an extraordinarily profitable year and has decided to do a one-time only $10 per share cash dividend.

17. Which one of the following events must occur before a firm can offer a liquidating dividend? 
A. Bankruptcy filing
B. Insolvency declaration
C. Asset sale
D. Negative equity
E. Failed bond issue

18. Kelsey International declared a dividend on Friday, November 13, that is payable on Friday, December 4, to holders of record on Monday, November 30. What is the latest date that you can purchase this stock if you wish to receive this dividend? Assume there are no banking holidays within this period of time. 
A. Tuesday, November 24
B. Wednesday, November 25
C. Thursday, November 26
D. Friday, November 27
E. Monday, November 30

19. Which one of the following dates is the date on which the board of directors votes to pay a dividend? 
A. Record date
B. Declaration date
C. Ex-dividend date
D. Payment date
E. Settlement date

20. Tuesday, December 1, is the ex-dividend date for Alpha stock. Which one of the following dates is the record date? Assume there are no banking holidays to consider. 
A. Friday, November 27
B. Monday, November 30
C. Wednesday, December 2
D. Thursday, December 3
E. Friday, December 4

21. Chelsie Enterprises declared a dividend to shareholders of record on Monday, February 8, that is payable on Friday, February 26. Carla knows that her dividend check normally arrives three business days after the check is written. On which one of the following days should she expect to receive her dividend check? 
A. Wednesday, February 10
B. Thursday, February 11
C. Monday, March 1
D. Tuesday, March 2
E. Wednesday, March 3

22. Davidson Interiors declared a dividend to holders of record on Thursday, October 15, that is payable on Monday, November 2. Suenette purchased 200 shares of Davidson Interiors stock on Monday, October 12 and Jake purchased 100 shares of this stock on the following day. Which one of the following statements is correct given this information? 
A. Both Suenette and Jake will receive this dividend.
B. Suenette will receive the dividend but Jake will not.
C. Jake will receive the dividend but Suenette will not.
D. Neither Suenette nor Jake will receive this dividend.
E. You cannot determine who will or will not receive this dividend based on the information provided.

23. Twelve days ago, DOG, Inc. declared a dividend of $1.34 a share. The ex-dividend date is tomorrow. All else constant, which one of the following is the best estimate of DOG, Inc.'s opening stock price tomorrow? 
A. $1.34 lower than today's closing price
B. today's closing price minus an amount approximately equal to the aftertax value of the dividend
C. the same as today's closing price since the dividend is expected
D. $1.34 higher than today's closing price
E. today's closing price plus an amount approximately equal to the aftertax value of the dividend

24. Which one of the following statements is correct? 
A. Dividends are irrelevant.
B. Flotation costs are a good reason to support a high dividend payout.
C. Current tax laws favor high current dividends for individual investors.
D. Dividend policy is the time pattern of dividend payout.
E. Corporate investors tend to prefer low dividend payouts on securities they own.

25. Which one of the following is an argument that dividend policy is irrelevant? 
A. Flotation costs as they apply to equities.
B. Tax laws as they currently exist.
C. An unsatisfied demand for high-dividend paying stocks.
D. Current equilibrium in the clientele dividend market.
E. The current tax exclusion available to corporate investors.

26. Which one of the following statements is correct concerning the taxation of dividends and capital gains? 
A. Seventy percent of capital gains derived from stock investments are tax exempt for corporate investors.
B. Dividends are a form of tax-exempt income for individual investors.
C. All investors are subject to the same tax rate on dividend income.
D. Individual investors can defer taxation on both dividends and capital gains.
E. As of 2003, individual investors pay a 15 percent tax on both dividends and capital gains.

27. Which one of the following would tend to favor a low dividend payout? 
A. Higher tax rates on capital gains than on dividend income
B. High flotation cost for equity issues
C. Endowment fund investors who cannot spend principal
D. Investors' desire for a high dividend yield
E. Elimination of the tax-deferral on capital gains

28. Which two of the following tend to limit the amount of dividends that can be paid by a leveraged corporation?
I. current tax laws
II. corporate tax exclusion
III. bond indenture covenant
IV. state laws pertaining to retained earnings 
A. I and II only
B. I and III only
C. II and III only
D. II and IV only
E. III and IV only

29. As of 2003, the maximum tax rate on long-term capital gains for high-income individuals was which one of the following rates? 
A. 10 percent
B. 15 percent
C. 20 percent
D. 35 percent
E. 39 percent

30. Which one of the following factors favors a high dividend payout? 
A. Low transaction costs on stock trades
B. Lower taxes on capital gains than on dividends
C. Tax deferment on capital gains, but not on dividend income
D. Flotation costs
E. Corporate shareholders

31. What percent of capital gains are excluded from taxation for corporate shareholders? 
A. 0 percent
B. 10 percent
C. 25 percent
D. 70 percent
E. 75 percent

32. Phil is reviewing ABC Company's dividend policy as it relates to the firm's shareholders. As part of this review, he wants to divide shareholders into two basic categories in respect to dividend payments. The first group will be shareholders who are taxed on dividend income and the second group will be shareholders who receive some form of tax break on dividend income. Which of the following types of shareholders should be placed in the tax-favored second group?
I. corporate
II. pension fund
III. individuals
IV. trust funds 
A. I only
B. III only
C. I and III only
D. II and IV only
E. I, II, and IV only

33. Assume that clienteles exist. Given this assumption, which one of the following statements is correct? 
A. A firm can increase its share price by increasing its dividend payout.
B. Dividend policy is irrelevant as long as each clientele group is currently satisfied.
C. All firms will adopt a high dividend payout policy.
D. All dividends become irrelevant.
E. All firms should adopt a low dividend payout policy.

34. Martin & Martin, Inc. stock is currently selling for $19 per share. The firm just made an offer to one of its major shareholders to repurchase all the shares owned by that shareholder for $25 per share. What type of offer is being made? 
A. Rights offer
B. Secondary issue
C. Targeted repurchase
D. Tender offer
E. Private issue

35. Joseph Turner and Sons has 125,000 shares of stock outstanding. The firm has extra cash so it announced this morning that it is willing to repurchase 25,000 of its shares. What type of offer is the firm making? 
A. Rights offer
B. Secondary issue
C. Targeted repurchase
D. Tender offer
E. Private issue

36. Which of the following are means by which a firm can reduce its number of outstanding shares?
I. open market purchase
II. rights offer
III. tender offer
IV. targeted repurchase 
A. IV only
B. I and IV only
C. II, III, and IV only
D. I, III and IV only
E. I, II, III, and IV

37. Kelso's is considering spending $80,000 on either a stock repurchase or an extra cash dividend. Which one of the following values will be the same whether the firm pays a dividend or repurchases stock? Assume there are no taxes or market imperfections. 
A. Number of shares outstanding
B. Price per share
C. Earnings per share
D. Price-earnings ratio
E. Market value of equity per share

38. Which one of the following will result from a stock repurchase? 
A. Increase in the number of shares outstanding
B. Decrease in the earnings per share
C. Decrease in the market price per share
D. Increase in the market value of equity per share
E. Decrease in the P/E ratio

39. Elkins Feed Lot is an all-equity firm with positive net income. Which one of the following will result if the firm pays a cash dividend? 
A. Number of shares outstanding will increase
B. Earnings per share will decrease
C. Total assets will remain constant
D. Price-earnings ratio will decrease
E. Total equity will increase

40. Assume there are no taxes or imperfections. Given this assumption, which one of the following statements is correct? 
A. A cash dividend has no effect on the market price of the payer's stock.
B. A cash dividend decreases shareholder wealth.
C. Stock repurchases decrease the market value per share.
D. Both a cash dividend and a share repurchase increase a firm's PE ratio.
E. A stock repurchase has the same effect on a firm's market value balance sheet as does a cash dividend.

41. Given the current tax laws, which one of the following statements is correct? 
A. Both stock repurchases and cash dividends are treated equally for tax purposes for individual shareholders.
B. Stock repurchases give individual shareholders more control over their personal taxes than do cash dividends.
C. Cash dividends are preferable to stock repurchases from the individual shareholder point of view.
D. Stock repurchases offer more tax benefits to the issuer than do cash dividends.
E. Cash dividends offer more tax benefits than do stock repurchases for the issuer.

42. Which one of the following statements related to stock buybacks is correct? 
A. Stock buybacks are a means of obtaining shares for employee stock option grants.
B. Stock buybacks are becoming rare and may soon disappear totally.
C. In 2007 and 2008,