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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

F) A) and E)
G) A) and D)

Correct Answer

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Davis Engineering 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? Assume a 365-day year.


A) Wednesday, February 10
B) Thursday, February 11
C) Monday, March 1
D) Tuesday, March 2
E) Wednesday, March 3

F) D) and E)
G) A) and D)

Correct Answer

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Dress Boutique has 8,350 shares of stock outstanding at a price per share of $19.What will be the price per share if the firm pays a $.75 per share dividend and the applicable tax rate is 25 percent? Ignore market imperfections.


A) $18.44
B) $18.68
C) $18.25
D) $18.36
E) $18.49

F) C) and E)
G) All of the above

Correct Answer

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Dixie's has a market value balance sheet as shown below.The firm currently has 2,200 shares of stock outstanding and net income of $10,500. \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad  Market Value Balance Sheet  \text { Market Value Balance Sheet }  Excess cash $14,300 Debt $84,600 Other assets 215,460‾ Equity 145,160 Total $229,760 Total $229,760\begin{array} { | l | r | l | l | r | } \hline \text { Excess cash } & \$ 14,300 & & \text { Debt } & \$ 84,600 \\\hline \text { Other assets } & \underline { 215,460 } & & \text { Equity } & 145,160 \\\hline \text { Total } & \$ 229,760 & & \text { Total } & \$ 229,760 \\\hline\end{array} The firm has decided to spend $6,500 on new equipment and use the remaining excess cash to pay an extra cash dividend.What will the firm's PE ratio be after this dividend is paid,all else held constant? Ignore taxes.


A) 14.20
B) 16.67
C) 13.08
D) 11.22
E) 14.57

F) B) and C)
G) C) and E)

Correct Answer

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Which statement is correct?


A) Stock dividends tend to reduce agency costs related to shareholders but stock repurchases do not.
B) It is relatively easy to determine whether or not a firm has completed a planned stock repurchase.
C) Fixed stock repurchases allow managers to repurchase shares only when they feel those shares are undervalued.
D) Stock dividends may come at the expense of forgoing positive net present value projects.
E) Stock repurchases send the exact same signals to investors as cash dividends send.

F) A) and B)
G) B) and C)

Correct Answer

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A share repurchase will:


A) increase both earnings per share and the PE ratio.
B) increase the earnings per share but not affect the PE ratio.
C) increase the earnings per share and decrease the PE ratio.
D) not affect either the earnings per share nor the PE ratio.
E) not affect the earnings per share but will decrease the PE ratio

F) A) and D)
G) C) and D)

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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

F) C) and D)
G) C) and E)

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Modern Homes just declared a 4-for-3 stock split.Which of the following occurred as a result of this split? I.Number of shares outstanding increased by one-third II.Number of shares outstanding decreased by one-fourth III.Price per share increased by one-third IV.Price per share decreased by one-fourth


A) I only
B) I and III only
C) I and IV only
D) II and III only
E) II and IV only

F) B) and C)
G) None of the above

Correct Answer

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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

F) C) and E)
G) A) and C)

Correct Answer

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Which statement is correct regarding US companies?


A) The personal taxes of investors is the key factor managers consider when establishing a dividend policy.
B) Firms tend to increase their regular dividend as soon as they expect increased earnings in the future.
C) Firms tend to react quickly to lower dividends any time the economy begins to slow.
D) Firms tend to quickly adjust their dividends to changes in the firm's P/E ratio.
E) Procter &Gamble is one example of a firm with a long history of increasing dividends.

F) A) and B)
G) A) and C)

Correct Answer

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Kaylor's Tool Shoppe has 8,600 shares of stock outstanding at a market price of $8 a share.Which one of the following stock splits should the firm declare if it wants to increase the stock price to exactly $36a share? Ignore any taxes or market imperfections.


A) 3-for-4 stock split
B) 2-for-11 stock split
C) 2-for-7 reverse stock split
D) 2-for-9 reverse stock split
E) 2-for-8 reverse stock split

F) A) and E)
G) None of the above

Correct Answer

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Innovative Technologies has 46,000 shares of stock outstanding at a market price of $6 a share.Which one of the following stock splits should the firm declare if it wants to increase the stock price to exactly $16 a share? Ignore any taxes or market imperfections.


A) 5-for-2 stock split
B) 3-for-1 stock split
C) 1-for-3-reverse stock split
D) 2-for-5 reverse stock split
E) 3-for-8 reverse stock split

F) B) and D)
G) D) and E)

Correct Answer

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The Sports Store is preparing to pay its quarterly dividend of $1.47 a share.The stock closed at $62.80 a share today and goes ex-dividend tomorrow.What will the ex-dividend stock price be if the relevant tax rate is 15 percent and all else is held constant?


A) $62.28
B) $62.20
C) $61.55
D) $61.33
E) $61.28

F) B) and D)
G) A) and E)

Correct Answer

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Davidson International has 13,700 shares of stock outstanding at a price per share of $28.The firm has decided to repurchase 500 of those shares in the open market.What will the price per share be after the share repurchase is completed? Ignore taxes and market imperfections.


A) $29.14
B) $28.84
C) $28.89
D) $28.00
E) $29.06

F) A) and D)
G) A) and C)

Correct Answer

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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

F) A) and E)
G) C) and D)

Correct Answer

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Tattler,Inc.has declared a dividend of $2.10 a share.Suppose capital gains are not taxed,but dividends are taxed at 15 percent and that the IRS regulations require that taxes be withheld at the time the dividend is paid.Tattler sells for $67 per share,and the stock is about to go ex-dividend.What do you think the ex-dividend price will be?


A) $62.40
B) $65.22
C) $65.08
D) $66.67
E) $68.04

F) A) and C)
G) All of the above

Correct Answer

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The common stock of White's Hardware closed at $42.15 a share today.Tomorrow morning,the stock goes ex-dividend.The dividend that is being paid this quarter is $1.26 a share.Assume the tax rate on dividends is 15 percent.All else equal,what should the opening stock price be tomorrow morning?


A) $42.15
B) $40.94
C) $40.89
D) $41.08
E) $41.23

F) A) and D)
G) A) and B)

Correct Answer

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Taylor's stock has plummeted in value and is currently priced at $5 a share.The firm prefers the price exceed $10 a share and thus has decided to do a reverse stock split.However,when it does this,the firm wants the stock price increased to at least twice its preferred minimum as it is concerned the price will fall further.Which one of the following stock split ratios is most appropriate for this situation?


A) 1-for-3
B) 1-for-4
C) 2-for-7
D) 4-for-1
E) 7-for-2

F) B) and C)
G) A) and B)

Correct Answer

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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

F) A) and B)
G) A) and C)

Correct Answer

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The common stock of Beasley International goes ex-dividend tomorrow.The stock closed at a price of $28.06 a share today.This quarter,the company is paying a cash dividend of $.17 a share and a liquidating dividend of $.23 a share.Assuming the tax rate on dividends is 20 percent,what will be the ex-dividend price tomorrow morning?


A) $27.74
B) $27.68
C) $27.94
D) $33.96
E) $27.66

F) A) and D)
G) D) and E)

Correct Answer

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