Chapter 17 - Dividends and Dividend Policy
Chapter 17 Dividends and Dividend Policy Multiple Choice Questions
1. Green Roof Motels has more cash on hand than its operations require. Thus the firm has decided to pay out some of its earnin!s in the form of cash to its shareholders. "hat are these payments to shareholders called# $. dividends %. stoc& payments C. repurchases D. payments-in-&ind '. stoc& splits
(. )ester*s +ro,en +oods ust paid out /.0/ /.0/ a share to its shareholders. The cash for these payments came from a lar!e sale of assets not from from any earnin!s of the firm. "hat are these payments to shareholders called# $. dividends %. distriutions C. repurchases D. payments-in-&ind '. stoc& splits
2. $ /.3/ quarterly cash payment paid y T.). 4ones 5 Co. to its shareholders in the normal course of usiness is called a6 $. repurchase. %. liquidatin! dividend. C. re!ular cash dividend. D. special dividend. '. etra cash dividend.
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Chapter 17 - Dividends and Dividend Policy
8. The oard of directors of "ilson 9portin! 'quipment met this afternoon and passed a resolution to pay a cash dividend of /.8( a share net month. :n relation to this dividend today is referred to as ;hich one of the follo;in! dates# $. decision date %. date-of-record C. declaration date D. payment date '. e-dividend date
0. The e-dividend date is defined as <<<<< usiness day=s> efore the date of record. $. 1 %. ( C. 2 D. 0 '. 1/
3. "hich one of the follo;in! dates is used to determine the names of shareholders ;ho ;ill receive a dividend payment# $. e-ri!hts date %. e-dividend date C. date of record D. date of payment '. declaration date
7. Dividend payments are mailed on ;hich one of the follo;in! dates# $. e-ri!hts date %. e-dividend date C. date of record D. date of payment '. declaration date
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Chapter 17 - Dividends and Dividend Policy
?. "hich one of the follo;in! refers to the aility of shareholders to undo a firm*s dividend policy and create an alternative dividend policy y reinvestin! dividends or sellin! shares of stoc $. perfect foresi!ht model %. personali,ation C. recapitali,ation D. offsettin! levera!e '. homemade dividend policy
@. "hat is the information content effect# $. any type of ne; information that causes a firm to cease payin! dividends %. any ne;s announcement that ;as anticipated and thus produces no reaction from investors C. the primary contriutin! data that helps directors determine the amount of a particular dividend payment D. any type of reaction from a shareholder in response to a ne;s announcement related to the stoc& issuer '. the financial mar&et*s reaction to a chan!e in the amount of a firm*s dividend
1/. The common stoc& of Pierson 'nterprises has historically had a hi!h dividend yield an d is epected to continue to do d o so. $s a result the maority of its shareholders are individuals and entities that are see&in! a re!ular source of cash income. Most of these shareholders pay either no taes or a relatively lo; amount of taes. The fact that most of these shareholders have similar characteristics is referred to y ;hich one of the follo;in! terms# $. information content effect %. clientele effect C. efficient mar&ets hypothesis D. distriution effect '. mar&et reaction effect
11. A4 Corporation has ecess cash and has opted to uy some of its shares of outstandin! common stoc&. "hat is this process of uyin! called# $. stoc& dividend %. stoc& split C. stoc& repurchase D. stoc& recap '. stoc& repeal
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Chapter 17 - Dividends and Dividend Policy
1(. "hich one of the follo;in! involves a payment in shares y a stoc& issuer that increases the numer of shares a shareholder o;ns ut also decreases the value per share# $. cash dividend %. stoc& dividend C. stoc& repurchase D. stoc& split '. reverse stoc& split
12. "hich one of the follo;in! does not affect the total equity of a firm ut does increase the numer of shares outstandin!# $. special dividend %. stoc& split C. share repurchase D. ri!hts offer '. liquidatin! dividend
18. %ell "eather "eather Mar&ets has recently sold for as little as ? a share and as much as 10 a share. The difference et;een these t;o prices is referred to as the6 $. price variance. %. id-as& spread. C. tradin! ran!e. D. openin! price. '. closin! price.
10. $ reverse stoc& split is defined as6 $. an increase in the numer n umer of shares outstandin! that does not affect o;ners* equity. %. a firm uyin! ac& eistin! e istin! shares of its stoc& on the open mar&et. C. a firm sellin! ne; shares of stoc& on the open mar&et. D. a decrease in the numer of shares outstandin! that does not affect o;ner*s equity. '. a decrease in oth the numer of shares outstandin! and the price per share.
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Chapter 17 - Dividends and Dividend Policy
13. "hich one of the follo;in! statements related to cash dividends is correct# $. 'tra cash dividends cannot e repeated in the future. %. $ dividend is never a liaility until it has een declared. C. :f a firm has paid re!ular quarterly dividends for at least five consecutive years it is le!ally oli!ated to continue doin! so. D. Re!ular cash dividends reduce paid-in capital. '. The dividend yield epresses the annual dividend as a percenta!e of net income.
17. %illin!sley Bnited declared a /.(/ a share dividend on Thursday ctoer 13. The dividend ;ill e paid on Monday ovemer 1/ to shareholders of record on +riday ctoer 21. "hich one of the follo;in! is the e-dividend date# $. Tuesday ctoer (? %. "ednesday ctoer (@ C. Thursday ctoer 2/ D. "ednesday ovemer 0 '. Thursday ovemer 3
1?. Taylor*s Tools declared a /.8? a share dividend on +riday March 7. The dividend ;ill e paid on Monday $pril 7. The e-dividend date is Tuesday March 1?. "hat is the record date# $. +riday March 18 %. Monday March 17 C. "ednesday March 1@ D. Thursday March (/ '. +riday March (1
1@. The last date on ;hich you can purchase shares of stoc& and still receive the dividend is the date ;hich is <<<<< usiness days prior to the date of record. $. 1 %. ( C. 2 D. 8 '. 0
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Chapter 17 - Dividends and Dividend Policy
(/. Eate purchased 0// shares of +ast Deliveries stoc& on "ednesday 4uly 7th. Ted purchased 1// shares of +ast Deliveries stoc& on Thursday 4uly ?th. +ast Deliveries declared a dividend on 4une (/th to shareholders of record on 4uly 1( th and payale on $u!ust 1st. "hich one of the follo;in! statements concernin! the dividend paid on $u!ust 1st is correct !iven this information# $. either Eate nor Ted is entitled to the dividend. %. Eate is entitled to the dividend ut Ted is not. C. Ted is entitled to the dividend ut Eate is not. D. %oth Ted and Eate are entitled to the dividend. '. %oth Ted and Eate are entitled to one-half of the dividend amount.
(1. $ll else equal the mar&et value of a stoc& ;ill tend to decrease y rou!hly the afterta value of the dividend on the6 $. dividend declaration date. %. e-dividend date. C. date of record. D. date of payment. '. day after the date of payment.
((. "hich one of the follo;in! statements related to dividend policy is correct# $. The primary question related to dividend policy is ;hether or not a firm should ever pay a dividend. %. %oth dividends and dividend policy are irrelevant. C. Dividend policy focuses on the timin! of dividend payments. D. Aomemade dividends increase the importance of a firm*s dividend policy decisions. '. "hether or not a firm ever pays a dividend is irrelevant to equity valuation.
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Chapter 17 - Dividends and Dividend Policy
(2. $utomatic dividend reinvestment plans6 :. require that stoc&holders reinvest all of the dividends to ;hich they are entitled. ::. sometimes !rant shareholders the privile!e of purchasin! additional shares at a discounted price. :::. help shareholders create their o;n homemade dividend policies. :F. help ma&e corporate dividend policies irrelevant to individual stoc&holders. $. :: only %. ::: only C. :: and ::: only D. :: ::: and :F only '. : :: ::: and :F
(8. "hich of the follo;in! tends to increase the aility of a shareholder to create his or her o;n homemade dividend policy# :. lo; taes on capital !ains ::. dividend reinvestment plans :::. lar!e holdin!s of shares :F. lo; cost equity purchases $. :: only %. :: and ::: only C. : :: and ::: only D. :: ::: and :F only '. : :: ::: and :F
(0. "hich one of the follo;in! favors a lo; dividend policy# $. the ta on capital !ains is deferred until the !ain is reali,ed %. fe; if any positive net present value proects are availale to a firm C. a maority of the shareholders has a lo; relevant ta rate D. a maority of the shareholders has etter investment opportunities ;ith similar ris&s '. corporate ta rates eceed personal ta rates
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Chapter 17 - Dividends and Dividend Policy
(3. The fact that flotation costs can e si!nificant is an ar!ument for6 $. a firm to issue lar!er dividends than its closest competitors. %. a firm to maintain a constant dividend policy even if it frequently has to issue ne; C. shares. D. maintainin! a constant dividend policy even ;hen profits decline si!nificantly. '. maintainin! a hi!h dividend policy. +. maintainin! a lo; dividend policy and rarely issuin! etra dividends.
(7. "hich of the follo;in! tend to &eep dividends lo;# :. shareholders desirin! current income ::. terms contained in ond indenture a!reements :::. the desire to maintain constant dividends over time :F. flotation costs $. :: and ::: only %. : and :F only C. :: ::: and :F only D. : :: and ::: only '. : :: ::: and :F
(?. "hich of the follo;in! shareholders tend to favor a hi!h dividend policy# :. retired individuals ::. endo;ment funds :::. corporate investors :F. investors ;ith hi!h dividend ta rates ut lo; capital !ains ta rates $. : and ::: only %. :: and :F only C. : :: and ::: only D. :: ::: and :F only '. : :: ::: and :F
(@. $n investor is more li&ely to prefer a hi!h dividend payout if a firm6 $. has hi!h flotation costs. %. has fe; if any positive net present value proects. C. has lo;er ta rates than the investor. D. has a stoc& price that is increasin! rapidly. '. offers sustantial !ains on its equities ;hich are taed at a favorale rate.
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Chapter 17 - Dividends and Dividend Policy
2/. The information content of a dividend increase !enerally si!nals that6 $. the firm has a one-time surplus of cash. %. the firm has fe; if any net present value proects to pursue. C. mana!ement elieves earnin!s !ro;th ;ill e stron! !oin! for;ard. D. the firm has more cash than it needs due to a decline in future orders. '. dividends thereafter ;ill e lo;er.
21. 9.). Moffatt :nc. has paid a quarterly dividend of 1.(/ per share for the last ten quarters. "hich one of the follo;in! is most apt to cause the firm to reduce the amount of its net dividend payment# $. decrease in the net quarter*s revenue %. decrease in the net quarter*s net income C. loss of a maor customer ;hich lo;ers the firm*s outloo& for the net fe; years D. maor lump sum cash outflo; net month to settle a class action product liaility la;suit on a product that is no lon!er produced '. decrease in the numer of ne; proects under consideration as compared to last year
2(. The dividend mar&et is in equilirium ;hen6 $. all firms adopt a lo; dividend policy. %. half of the firms adopt a lo; dividend policy and half adopt a hi!h dividend policy. C. all clienteles are satisfied. D. dividends remain constant and no special dividends are declared. '. the total amount of the annual dividends is equal to the net income for the year.
22. "hich one of the follo;in! statements related to stoc& repurchases is correct# $. $n open mar&et stoc& repurchase increases the total ;ealth of a shareholder if you i!nore taes costs and mar&et imperfections. %. Tar!eted repurchases must e offered to all shareholders ut can e done in steps such that only a portion of the shareholders have the option to sell at any one point in time. C. "hen a firm ;ishes to repurchase shares in the open mar&et it ;ill do so in a special tradin! session that is set up y the 9'C. D. $ firm may spend more cash over the course of a year on stoc& repurchases than it does on cash dividends. '. Tender offer prices must e set equal to the openin! mar&et price on the day the tender offer is announced.
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Chapter 17 - Dividends and Dividend Policy
28. "hich one of the follo;in! statements related to stoc& repurchases is correct# $. B.9. industrial firms have increased their stoc& repurchases every year for each of the past t;enty years. %. $ stoc& repurchase can e used as a means for incument officers to retain control of a firm. C. $ tender offer indicates that a firm is ;illin! and ale to purchase ho; ever many shares the current shareholders ;ish to sell. D. $ll stoc& repurchases must e identified as such to the sellin! party. '. 9toc& repurchases can e a relatively ta-efficient method of distriutin! cash to shareholders.
20. $ stoc& repurchase pro!ram6 $. requires all shareholders to sell a fraction of their shares. %. is preferred over a hi!h-dividend pro!ram only y ta-eempt shareholders. C. decreases oth the numer of shares outstandin! and the mar&et price per share. D. has no effect on a firm*s financial statements. '. is essentially the same as a cash dividend pro!ram provided there are no taes or other costs.
23. "hich one of the follo;in! is a result of a stoc& repurchase# $. increase in the numer of shares outstandin! %. increase in the mar&et price per share C. increase in the total equity of the repurchasin! firm D. decrease in 'P9 '. P' ratio equal to that resultin! from a comparale cash dividend
27. :f you i!nore taes and costs a stoc& repurchase ;ill6 :. reduce the total assets of a firm. ::. decrease the earnin!s per share. :::. reduce the P' ratio more so than an equivalent stoc& dividend. :F. reduce the total equity of a firm. $. : and ::: only %. : and :F only C. :: and :F only D. : ::: and :F only '. :: ::: and :F only
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Chapter 17 - Dividends and Dividend Policy
2?. 9teve o;ns 2/// shares of P :nc. stoc& ;hich he purchased si years a!o at a price of (( a share. Today these shares are sellin! for 3? each. $ssume the current ta la;s are such that 9teve is suect to a ta rate of (0 percent on oth his dividend income and his capital !ains. +rom 9teve*s point of vie; a stoc& repurchase today6 =:!nore costs> $. is equivalent to a cash dividend in all respects. %. is more desirale than a cash dividend in respect to taes. C. ;ill result in the same ta liaility as an equivalent cash dividend. D. is more hi!hly taed than a cash dividend. '. is totally unacceptale to him.
2@. "hich one of the follo;in! statements correctly applies to B.9. industrial firms ased on the period of 1@?8 -(//8# $. 'arnin!s !ro;th rates tend to la! dividend !ro;th rates. %. Dividends tend to fluctuate si!nificantly from quarter to quarter. C. The percenta!e of these firms payin! dividends in (//8 ;as hi!her than in 1@?8. D. The total amount of dividends paid y these firms ;as !reater in (//8 than in 1@?8. '. on-dividend payin! firms in 1@?8 ;ere more apt to commence payin! re!ular dividends than to implement a stoc& repurchase pro!ram.
8/. "hich one of the follo;in! statements appears to e supported y the current dividend policies of B.9. industrial firms# $. +irms tend to increase the dividend amount per share even ;hen it*s unclear if the increase can e maintained. %. :nvestors no lon!er react to chan!es either up or do;n in dividends. C. e;er hi!h-!ro;th firms tend to pay lar!er dividends than mature firms. D. Dividends are still vie;ed y shareholders as a si!nal of a firm*s future outloo&. '. Mana!ers are no lon!er hesitant to lo;er dividend payments.
81. "hich one of the follo;in! statements is correct# $. +irms prefer to cut dividend payments rather than orro; money to fund a short-term cash need. %. 9hare repurchases tend to increase a!ency costs. C. Maintainin! a steady dividend is a &ey !oal of most dividend-payin! firms. D. Ta rates are the &ey factor in determinin! a firm*s dividend policy. '. 9toc& prices tend to i!nore epected chan!es in dividend payments.
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Chapter 17 - Dividends and Dividend Policy
8(. "hich of the follo;in! alance sheet accounts are affected y a small stoc& dividend# :. cash ::. common stoc& :::. retained earnin!s :F. capital in ecess of par value $. : and ::: only %. :: and ::: only C. :: and :F only D. :: ::: and :F only '. : :: ::: and :F
82. $ small stoc& dividend is defined as a stoc& dividend of less than <<<<< percent. $. 1/ to 10 %. 10 to (/ C. (/ to (0 D. (0 to 2/ '. 2/ to 20
88. "hich one of the follo;in! is a result of a small stoc& dividend# $. increase in retained earnin!s %. decrease in total o;ner*s equity C. decrease in cash D. decrease in capital in ecess of par value '. increase in common stoc&
80. "hich of the follo;in! account alance chan!es occur as a result of a lar!e stoc& dividend# :. increase in common stoc& ::. decrease in capital in ecess of par :::. increase in capital in ecess of par :F. decrease in retained earnin!s $. : and ::: only %. :: and :F only C. : and :F only D. :: and ::: only '. : ::: and :F only
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Chapter 17 - Dividends and Dividend Policy
83. Revol-Tech is a technolo!y firm ;ith ecellent !ro;th prospects. The firm ;ishes to do somethin! to ac&no;led!e the loyalty of the shareholders ut needs all of its availale cash to fund the firm*s rapid !ro;th. The mar&et price of the stoc& is currently tradin! at the upper end of its preferred tradin! ran!e. The firm is most apt to consider ;hich one of the follo;in! in this situation# $. liquidatin! dividend %. stoc& split C. reverse stoc& split D. small stoc& dividend '. special cash dividend
87. "hich t;o of the follo;in! are the est ustifications for a reverse stoc& split# :. comine a reverse stoc& split ;ith a stoc& repurchase to enale a firm to !o dar& ::. increase the respectaility of the stoc& :::. avoid delistin! :F. reduce transaction costs for shareholders $. : and :: only %. : and ::: only C. :: and ::: only D. :: and :F only '. ::: and :F only
8?. $ stoc& split6 $. increases the total value of the common stoc& account. %. decreases the value of the retained earnin!s account. C. increases the par value per share. D. increases the value of the capital in ecess of par account. '. decreases the mar&et value per share.
8@. 9toc& splits can e used to6 $. adust the mar&et price of a stoc& such that it falls ;ithin a preferred tradin! ran!e. %. decrease the ecess cash held y a firm therey lo;erin! a!ency costs. C. increase oth the numer of shares outstandin! and the mar&et price per share. D. increase the total equity of a firm. '. adust the det-equity ratio.
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Chapter 17 - Dividends and Dividend Policy
0/. "hich one of the follo;in! is a direct result of a (-for-1 stoc& split# $. a 1// percent increase in the numer of shareholders %. a 1// percent increase in the common stoc& account alance C. a 1// percent decrease in the stoc& price D. a 0/ percent increase in the numer of shares outstandin! '. a 0/ percent decrease in the par value per share
01. 9li!o Minerals stoc& is currently tradin! at 3 a share. The firm elieves its primary clientele can afford to spend et;een 10// and (/// to purchase a round lot of 1// shares. The firm should consider a6 $. reverse stoc& split. %. liquidatin! dividend. C. stoc& dividend. D. stoc& split. '. special dividend.
0(. $ one-for-four reverse stoc& split ;ill6 $. increase the par value y (0 percent. %. increase the numer of shares outstandin! y 8// percent. C. increase the mar&et value ut not affect the par value per share. D. increase a 1 par value to 8. '. increase a 1 par value to 0.
02. $ firm ;ants to maintain a minimum stoc& price of 10 a share. Due to a recent mar&et do;nturn the stoc& is currently sellin! for 3 a share. The firm should consider a6 $. 2-for-1 stoc& split. %. 8-for-1 stoc& split. C. 1-for-2 reverse stoc& split. D. 1-for-8 reverse stoc& split. '. 1-for-0 reverse stoc& split.
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Chapter 17 - Dividends and Dividend Policy
08. Plyler Cainets declared a dividend of 1.(/ a share on May 10 to holders of record on Monday 4une 1. The dividend is payale on 4une 10. 9ara purchased 0// shares of Plyler Cainets stoc& on +riday May (@. Ao; much dividend income ;ill she receive on 4une 10 from Plyler Cainets# $. / %. /.?/ C. 1.3/ D. 13/.// '. 2(/.//
00. 9teve purchased 2// shares of $lpha %eta stoc& on May @. n May 10 he purchased another (// shares and then on May (( he purchased a final 8// shares of $lpha %eta stoc&. The company declared a dividend of 1.3/ a share on $pril 2/ to holders of record on +riday May (2. The dividend is payale on 4une (. Ao; much dividend income ;ill 9teve receive on 4une ( from $lpha %eta# $. / %. 8?/ C. ?// D. 1(// '. 188/
03. n 4uly 7 you purchased 0// shares of "a!oneer :nc. stoc& for (1 a share. n $u!ust 1 you sold (// shares of this stoc& for (? a share. ou sold an additional 1// shares on $u!ust 17 at a price of (0 a share. The company declared a /.@0 per share dividend on $u!ust 8 to holders of record as of "ednesday $u!ust 10. This dividend is payale on 9eptemer 1. Ao; much dividend income ;ill you receive on 9eptemer 1 as a result of your o;nership of "a!oneer stoc $. / %. 1@/ C. (?0 D. 23/ '. 870
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Chapter 17 - Dividends and Dividend Policy
07. "ester Bnited is payin! a 1.1/ per share dividend today. There are 20//// shares outstandin! ;ith a mar&et price of (2 per share. :!nore taes. %efore the dividend the company had earnin!s per share of 1.78. $s a result of this dividend the6 $. retained earnin!s ;ill decrease y 20////. %. retained earnin!s ;ill increase y 2?0///. C. total firm value ;ill not chan!e. D. earnin!s per share ;ill increase to (.?8. '. price-earnin!s ratio ;ill e 1(.0@.
0?. ou o;n ((// shares of Deltona Aard;are. The company has stated that it plans on issuin! a dividend of /.8( a share at the end of this year and then issuin! a final liquidatin! dividend of (.@/ a share at the end of net year. our required rate of return on this security is 13 percent. :!norin! taes ;hat is the value of one share of this stoc& to you today# $. (.2/ %. (.82 C. (.0( D. (.@( '. 2.2(
0@. $l o;ns ?// shares of The Good )ife Co. The company recently issued a statement that it ;ill pay a dividend per share of /.00 this year and a /.3/ per share dividend net year. $l does not ;ant any dividend income this year ut does ;ant as much dividend income as possile net year. $l earns ?.0 percent on his investments. :!norin! taes ;hat ;ill $l*s total homemade dividend e net year# $. @1/.(/ %. @(/.// C. @2/.0/ D. @81.?/ '. @07.8/
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Chapter 17 - Dividends and Dividend Policy
3/. 4ennin!ston Mills has a mar&et value equal to its oo& value. Currently the firm has ecess cash of 1(// other assets of 0?// and equity valued at 270/. The firm has (0/ shares of stoc& outstandin! and net income of 8(/. "hat ;ill the ne; earnin!s per share e if the firm uses (0 percent of its ecess cash to complete a stoc& repurchase# $. 1.?2 %. 1.?@ C. 1.@3 D. (.// '. (./?
31. %lasco*s has a mar&et value equal to its oo& value. Currently the firm has ecess cash of 122( other assets of 11378 and equity of 7(//. The firm has 3// shares of stoc& outstandin! and net income of ?2?. %lasco*s has decided to spend one-third of its ecess cash on a share repurchase pro!ram. Ao; many shares of stoc& ;ill e outstandin! after the stoc& repurchase is completed# $. 027 shares %. 00/ shares C. 032 shares D. 07? shares '. 0?8 shares
3(. Tuc&er*s ational Distriutin! has a current mar&et value of equity of 1 /330. Currently the firm has ecess cash of 38/ total assets of ((8// net income of 2(1/ and 0// shares of stoc& outstandin!. Tuc&er*s is !oin! to use all of its ecess cash to repurchase shares of stoc&. "hat ;ill the stoc& price per share e after the stoc& repurchase is completed# $. (/.?7 %. (/.@8 C. (1./3 D. (1.22 '. (1.8(
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Chapter 17 - Dividends and Dividend Policy
32. The equity of %loomin! Roses has a total mar&et value of 13///. Currently the firm has ecess cash of 1(// and net income of 108//. There are 70/ shares of stoc& outstandin!. "hat ;ill e the percenta!e chan!e in the stoc& price per share if the firm pays out all of its ecess cash as a cash dividend# $.
[email protected]/ percent %. -7.0/ percent C. -0.?/ percent D. -(.70 percent '. /.// percent
38. Dela;are Trust has 80/ shares of common stoc& outstandin! at a mar&et price per share of (7. Currently the firm has ecess cash of 8// total assets of (?@// and net income of 12(/. The firm has decided to pay out all of its ecess cash as a cash dividend. "hat ;ill the earnin!s per share e after this dividend is paid# $. (.3@ %. (.?3 C. (.@2 D. 2./7 '. 2.(8
30. 4osh*s :nc. has 7/// shares of stoc& outstandin! ;ith a par value of 1.// per share and a mar&et value of 2( a share. The alance sheet sho;s 73/// in the capital in ecess of par account 7/// in the common stoc& account and 38?// in the retained earnin!s account. The firm ust announced a 1/ percent stoc& dividend. "hat is the value of the capital in ecess of par account after the dividend# $. 0/3// %. 082// C. 73/// D. @77// '. 1/18//
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Chapter 17 - Dividends and Dividend Policy
33. Randall*s :nc. has (//// shares of stoc& outstandin! ;ith a par value of 1.// per share. The mar&et value is 1( per share. The alance sheet sho;s 8(/// in the capital in ecess of par account (//// in the common stoc& account and 0/0// in the retained earnin!s account. The firm ust announced a 0 percent =small> stoc& dividend. "hat ;ill the alance in the retained earnin!s account e after the dividend# $. 2?0// %. 2@0// C. 0/0// D. 310// '. 3(0//
37. 9outhern +ried Chic&en has ?/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et value of 28 per share. The alance sheet sho;s 2@/// in the capital in ecess of par account ?/// in the common stoc& account and 10(/// in the retained earnin!s account. The firm ust announced a 0 percent stoc& dividend. "hat ;ill total o;ners* equity e after the dividend# $. 1?0?// %. 1@3/// C. 1@@/// D. (/3?// '. (1((//
3?. Fal*s Marina 9upply has 20// shares of stoc& outstandin! ;ith a par value of 1.// per share and a mar&et value of 1@ per share. The alance sheet sho;s 20// in the common stoc& account (8/// in the capital in ecess of par account and 218// in the retained earnin!s account. The firm ust announced a 1// percent stoc& dividend. "hat is the value of the capital in ecess of par account after the dividend# $. / %. (/0// C. (8/// D. 000// '. ?7///
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Chapter 17 - Dividends and Dividend Policy
3@. Eurt*s Mar&et has ?/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et value of 12 per share. The alance sheet sho;s ?/// in the common stoc& account (3/// in the capital in ecess of par account and 2(7// in the retained earnin!s account. The firm ust announced a 1// percent stoc& dividend. "hat ;ill e the alance in the retained earnin!s account after this dividend# $. / %. (87// C. 2(7// D. 8/7// '. 1(?7//
7/. The Tannin! %ed has 1//// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et value of ? per share. The alance sheet sho;s 1//// in the common stoc& account 3//// in the capital in ecess of par account and @82// in the retained earnin!s account. The firm ust announced a 1// percent stoc& dividend. "hat ;ill e the value of the common stoc& account after the dividend# $. 0/// %. 1//// C. 11/// D. 10/// '. (////
71. Feral Communications :nc. has 18/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et value of 83 per share. The firm ust announced a 1// percent stoc& dividend. "hat is the mar&et value per share after the dividend# $. (2.// %. 28.0/ C. 83.// D. 3@.// '. @(.//
17-(/
Chapter 17 - Dividends and Dividend Policy
7(. Della*s Pool Aalls has 1(/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et price of 2@ a share. The firm ust announced a 8-for-2 stoc& split. Ao; many shares of stoc& ;ill e outstandin! after the split# $. @/// shares %. 1//// shares C. 1(/// shares D. 183// shares '. 13/// shares
72. $lfon,o*s :talian Aouse has (0/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et price of 23 a share. The firm ust announced a 0-for-2 stoc& split. "hat ;ill the mar&et price per share e after the split# $. (1.3/ %. (8.(/ C. 23.// D. 08.// '. 3/.//
78. 9outh 9hore )imited has (1/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et price of 7.0/ a share. The firm ust announced a 0-for-( stoc& split. "hat ;ill the par value of the stoc& e after the split# $. /.8/ %. /.?/ C. 1.// D. 1.8/ '. 1.3/
70. Mario*s has 1?/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et price of 8 a share. The alance sheet sho;s 1?/// in the common stoc& account 223/// in the paid in surplus account and 38/// in the retained earnin!s account. The firm ust announced a 0-for-1 stoc& split. "hat ;ill the paid in surplus account value e after the split# $. 33/// %. 223/// C. 8(3/// D. 08?/// '. 3/3///
17-(1
Chapter 17 - Dividends and Dividend Policy
73. Pre,ario*s has (0/// shares of stoc& outstandin! ;ith a par value of 1 per share. The current mar&et value of the firm is ?87///. Currently the retained earnin!s account alance is 8(?/// and the capital in ecess of par value account alance is 1?7///. The company ust announced a 2-for-1 stoc& split. "hat is the common stoc& account alance after the stoc& split# $. ?222 %. (0/// C. 70/// D. 77222 '. (2(///
77. The Peanut 9hac& has 3/// shares of stoc& outstandin! ;ith a par value of 1 per share. The current mar&et value of the firm is 1803//. The company ust announced a 2-for-( stoc& split. "hat ;ill the mar&et price per share e after the split# $. 1(.18 %. 13.1? C. (8.(7 D. (?.(/ '. 23.8/
7?. "estern Mountain "ater has 11/// shares of stoc& outstandin! ;ith a par value of 1 per share. The current mar&et value of the firm is 120///. The alance sheet sho;s a capital in ecess of par value account alance of 3?/// and retained earnin!s of 8@///. The company ust announced a (-for-1 stoc& split. "hat ;ill the capital in ecess of par value account alance e after the split# $. 80222 %. 08337 C. 3?/// D. ?3337 '. 1/(///
17-((
Chapter 17 - Dividends and Dividend Policy
7@. The Peace River Corporation has 37/// shares of stoc& outstandin! at a mar&et price of 8? a share. The company has ust announced a 2-for-( stoc& split. Ao; many shares of stoc& ;ill e outstandin! after the split# $. 88337 shares %. 08222 shares C. ?@222 shares D. 1//0// shares '. 1/?333 shares
?/. Cooper %rands :nc. has 3?/// shares of stoc& outstandin! at a mar&et price of 32 a share. The par value is 1 per share. The company has ust announced a 0-for-8 stoc& split. "hat ;ill the mar&et price per share e after the split# $. 0/.8/ %. 0?.(/ C. 3(.0/ D. 7?.70 '. ?(.0/
?1. The Minin! Co. has (//// shares of stoc& outstandin!. The current mar&et value of the firm is 2(?///. The company has retained earnin!s of (7/// capital in ecess of par value of 13//// and a common stoc& account value of (////. The company is plannin! a (-for-0 reverse stoc& split. "hat ;ill the par value per share e after the split# $. /.10 %. /.(/ C. 1.// D. (.0/ '. 0.//
?(. 'ast Coast Marina has ((//// shares of stoc& outstandin!. The current mar&et value of the firm is 1?.@( million. The company has retained earnin!s of 2.? million paid in surplus of 3.7 million and a common stoc& account value of ((////. The company is plannin! a 2-for-( stoc& split. "hat ;ill the mar&et price per share e after the split# $. (?.37 %. 07.22 C. 33.37 D. 1/?.// '. 1(@.//
17-(2
Chapter 17 - Dividends and Dividend Policy
?2. 4ean*s "arehouse has 13/// shares of stoc& outstandin!. The current mar&et value of the firm is 73?///. The company has retained earnin!s of 1(2/// paid in surplus of 2(1/// and a common stoc& account value of 13///. The company is plannin! a 0-for-2 stoc& split. "hat ;ill the retained earnin!s account value e after the split# $. 72?// %. 1(2/// C. 1023// D. (/0/// '. (800//
?8. The common stoc& of Chec&ers :nc. is sellin! for 03 a share and the par value per share is 1. Currently the firm has a total mar&et value of ?1(///. Ao; many shares of stoc& ;ill e outstandin! if the firm does a 2-for-( stoc& split# $. @337 shares %. 1(0// shares C. 180// shares D. 1770/ shares '. (170/ shares
?0. The common stoc& of Gillen 'ntertainment is sellin! for 7? a share. The par value per share is 1. Currently the firm has a total mar&et value of @23///. Ao; many shares of stoc& ;ill e outstandin! if the firm does a 0-for-( stoc& split# $. 8?// shares %. @3// shares C. 10/// shares D. 2//// shares '. 2((// shares
?3. Purvis )a;n Products has 1?/// shares of stoc& outstandin! at a mar&et price of 0.0/ a share. "hat ;ill the mar&et price per share e if the company does a 1-for-8 reverse stoc& split# $. 1.2? %. 0.0/ C. 11.// D. 13.0/ '. ((.//
17-(8
Chapter 17 - Dividends and Dividend Policy
?7. The live Fase has 03/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et value of 11 a share. The company ust announced a 2-for-8 reverse stoc& split. Currently you o;n 8// shares of this stoc&. "hat ;ill the total value of your shares e after the reverse stoc& split# $. 22// %. 88// C. 00// D. 0?37 '. 3222
??. The Green +lorist has (?/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et value of 7 a share. The company ust announced a (-for-0 reverse stoc& split. Currently you o;n 2// shares of this stoc&. Ao; many shares ;ill you o;n after the reverse stoc& split# $. 3/ shares %. 1(/ shares C. 8?/ shares D. 3// shares '. 70/ shares
?@. City Center Pharmacy has 110// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et value of 1/ a share. The company ust announced a 2-for-7 reverse stoc& split. "hat ;ill the mar&et value per share e after the reverse stoc& split# $. 8.(@ %. 7.// C. 1/.// D. (2.22 '. (0.(1
17-(0
Chapter 17 - Dividends and Dividend Policy
Essay Questions
@/. ou are the C+ of a non-dividend payin! firm that currently has ecess cash reserves. ou are preparin! for an internal mana!ement meetin! ;here dividends are on the a!enda. ou &no; that the C' favors the commencement of a dividend pro!ram. ou ho;ever oppose any dividend plan at this time. "rite a !ood ar!ument that you can use in the meetin! to support your position.
@1. 'plain the meanin! of the dividend clientele effect and ;hy it is important.
@(. 9toc& repurchase pro!rams appear to ecomin! more popular ;ith usiness firms. 'plain the appeal of these pro!rams as compared to that of cash dividend pro!rams from the stoc& issuer*s point of vie;.
@2. :dentify some real-;orld factors ;hich mi!ht ma&e it more difficult for an individual to effectively create a homemade dividend policy.
17-(3
Chapter 17 - Dividends and Dividend Policy
@8. 'plain ho; cash dividends affect individual shareholders differently than an equal amount of funds spent on a repurchase.
Multiple Choice Questions
@0. The Green +iddle has declared an ? per share dividend. 9uppose capital !ains are not taed ut dividends are taed at 10 percent. e; :R9 re!ulations require that taes e ;ithheld at the time the dividend is paid. Green +iddle stoc& sells for 71.0/ per share and the stoc& is aout to !o e-dividend. "hat ;ill the e-dividend price e# $. 38.7/ %. 37.@/ C. 7?.2/ D.
[email protected]/ '. ?(.(2
@3. The o;ners* equity accounts for %lues;ell :ndustries are sho;n here6
:f %lues;ell :ndustries declares a 1-for-0 reverse stoc& split there ;ill e <<<< shares outstandin! at a par value of <<<<< per share. $. 1?//H 1.// %. 1?//H 0.// C. @///H 0.// D. 80///H /.(/ '. 80///H 1.//
17-(7
Chapter 17 - Dividends and Dividend Policy
@7. The Turtle Cave currently has 13//// shares of stoc& outstandin! that sell for 3/ per share. $ssume no mar&et imperfections or ta effects eist. "hat ;ill the ne; share price e if the firm declares a 10 percent stoc& dividend# $. 8?.7( %. 0(.17 C. 3/.// D. 38.0/ '. 3@.//
@?. Glendale Pavin! currently has 1(//// shares of stoc& outstandin! that sell for 08 per share. $ssume no mar&et imperfections or ta effects eist. "hat ;ill the ne; share price e if the firm declares a 8/ percent stoc& dividend# $. 21.1( %. 2(./? C. 20.1@ D. 2?.07 '. 8/.//
@@. The alance sheet for $pple Pie Corp. is sho;n here in mar&et value terms. There are 8/// shares of stoc& outstandin!.
The company has declared a dividend of 1.?/ per share. The stoc& !oes e-dividend tomorro;. :!nore any ta effects. "hat ;ill the price of the stoc& e tomorro;# $. 1?.@/ %. 23.(/ C. 8@.@0 D. 0(.10 '. 71.?/
17-(?
Chapter 17 - Dividends and Dividend Policy
1//. The alance sheet for $pple Pie Corp. is sho;n here in mar&et value terms. There are 0/// shares of stoc& outstandin!.
The company has announced that it is !oin! to repurchase 820/ ;orth of stoc&. "hat ;ill the price of the stoc& e after this repurchase# $. 20.// %. 23.1@ C. 2@.(1 D. 8(.0/ '. 82.22
1/1. The mar&et value alance sheet for :no Manufacturin! is sho;n here. :no has declared a (2 percent stoc& dividend. The stoc& !oes e-dividend tomorro; =the chronolo!y for a stoc& dividend is similar to that for a cash dividend>. There are 12/// shares outstandin!. "hat is the e-dividend stoc& price#
$. (1.(1 %. (2.01 C. (0./3 D. (3.?3 '. (?.@(
17-(@
Chapter 17 - Dividends and Dividend Policy
1/(. ou o;n 1/// shares of stoc& in $vondale Corporation. ou ;ill receive an ?/-cent per share dividend in one year. :n t;o years $vondale ;ill pay a liquidatin! dividend of 8/ per share. The required return on $vondale stoc& is 18 percent. "hat ;ill your dividend income e this year if you use homemade dividends to create t;o equal annual dividend payments# $. 101?8 %. 10@?/ C. 1?337 D. 1@117 '. (/8//
1/2. ou o;n 1/// shares of stoc& in $vondale Corporation. ou ;ill receive a /.?/ per share dividend in one year. :n t;o years $vondale ;ill pay a liquidatin! dividend of 20 per share. The required return on $vondale stoc& is 13 percent. ou only ;ant (// total in dividends in year one and accomplish this y usin! homemade dividends. "hat ;ill your total dividend amount e in year t;o# $. 17@// %. (/738 C. 203@3 D. 818/( '. 82?7?
1/8. %uilt Rite Corp. is evaluatin! an etra dividend versus a share repurchase. :n either case 00// ;ould e spent. Current earnin!s are /.?/ per share and the stoc& currently sells for 22 per share. There are (0/ shares outstandin!. :!nore taes and other imperfections. ou o;n one share of stoc& in this company. :f the company issues the dividend your total investment ;ill e ;orth <<<< as compared to <<<< if the company opts for a share repurchase. $. 11H 11 %. 11H (( C. 11H 22 D. (2H 22 '. 22H 22
17-2/
Chapter 17 - Dividends and Dividend Policy
Chapter 17 Dividends and Dividend Policy $ns;er Eey
Multiple Choice Questions
1. Green Roof Motels has more cash on hand than its operations require. Thus the firm has decided to pay out some of its earnin!s in the form of cash to its shareholders. "hat are these payments to shareholders called# A. dividends %. stoc& payments C. repurchases D. payments-in-&ind '. stoc& splits Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: Di!idend
(. )ester*s +ro,en +oods ust paid out /.0/ a share to its shareholders. The cash for these payments came from a lar!e sale of assets not from any earnin!s of the firm. "hat are these payments to shareholders called# $. dividends B. distriutions C. repurchases D. payments-in-&ind '. stoc& splits Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: Distribution
17-21
Chapter 17 - Dividends and Dividend Policy
2. $ /.3/ quarterly cash payment paid y T.). 4ones 5 Co. to its shareholders in the normal course of usiness is called a6 $. repurchase. %. liquidatin! dividend. C. re!ular cash dividend. D. special dividend. '. etra cash dividend. Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: (egular cas) di!idend
8. The oard of directors of "ilson 9portin! 'quipment met this afternoon and passed a resolution to pay a cash dividend of /.8( a share net month. :n relation to this dividend today is referred to as ;hich one of the follo;in! dates# $. decision date %. date-of-record C. declaration date D. payment date '. e-dividend date Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: Declaration date
17-2(
Chapter 17 - Dividends and Dividend Policy
0. The e-dividend date is defined as <<<<< usiness day=s> efore the date of record. $. 1 B. ( C. 2 D. 0 '. 1/ Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: *+$di!idend date
3. "hich one of the follo;in! dates is used to determine the names of shareholders ;ho ;ill receive a dividend payment# $. e-ri!hts date %. e-dividend date C. date of record D. date of payment '. declaration date Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: Date of record
17-22
Chapter 17 - Dividends and Dividend Policy
7. Dividend payments are mailed on ;hich one of the follo;in! dates# $. e-ri!hts date %. e-dividend date C. date of record D. date of payment '. declaration date Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: Date of ayment
?. "hich one of the follo;in! refers to the aility of shareholders to undo a firm*s dividend policy and create an alternative dividend policy y reinvestin! dividends or sellin! shares of stoc $. perfect foresi!ht model %. personali,ation C. recapitali,ation D. offsettin! levera!e E. homemade dividend policy Refer to section 17.(
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$, Section: "#%, &oic: -omemade di!idend olicy
17-28
Chapter 17 - Dividends and Dividend Policy
@. "hat is the information content effect# $. any type of ne; information that causes a firm to cease payin! dividends %. any ne;s announcement that ;as anticipated and thus produces no reaction from investors C. the primary contriutin! data that helps directors determine the amount of a particular dividend payment D. any type of reaction from a shareholder in response to a ne;s announcement related to the stoc& issuer E. the financial mar&et*s reaction to a chan!e in the amount of a firm*s dividend Refer to section 17.0
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$, Section: "#%. &oic: nformation content effe ct
1/. The common stoc& of Pierson 'nterprises has historically had a hi!h dividend yield an d is epected to continue to do so. $s a result the maority of its shareholders are individuals and entities that are see&in! a re!ular source of cash income. Most of these shareholders pay either no taes or a relatively lo; amount of taes. The fact that most of these shareholders have similar characteristics is referred to y ;hich one of the follo;in! terms# $. information content effect B. clientele effect C. efficient mar&ets hypothesis D. distriution effect '. mar&et reaction effect Refer to section 17.0
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$, Section: "#%. &oic: Clientele effect
17-20
Chapter 17 - Dividends and Dividend Policy
11. A4 Corporation has ecess cash and has opted to uy some of its shares of outstandin! common stoc&. "hat is this process of uyin! called# $. stoc& dividend %. stoc& split C. stoc& repurchase D. stoc& recap '. stoc& repeal Refer to section 17.3
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$0 Section: "#%1 &oic: Stoc2 reurc)ase
1(. "hich one of the follo;in! involves a payment in shares y a stoc& issuer that increases the numer of shares a shareholder o;ns ut also decreases the value per share# $. cash dividend B. stoc& dividend C. stoc& repurchase D. stoc& split '. reverse stoc& split Refer to section 17.?
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 di!idend
17-23
Chapter 17 - Dividends and Dividend Policy
12. "hich one of the follo;in! does not affect the total equity of a firm ut does increase the numer of shares outstandin!# $. special $. special dividend B. stoc& split C. share C. share repurchase D. ri!hts D. ri!hts offer '. liquidatin! '. liquidatin! dividend Refer to section 17.?
AACSB: N/A Bloom's: Knowledge Knowledge Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: &oic: Stoc2 slit
18. %ell "eather "eather Mar&ets has recently sold for as little as ? a share and as much as 10 a share. The difference et;een these t;o prices is referred to as the6 $. price $. price variance. %. id-as& %. id-as& spread. C. tradin! ran!e. D. openin! D. openin! price. '. closin! '. closin! price. Refer to section 17.?
AACSB: N/A Bloom's: Knowledge Knowledge Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: &rading range
17-27
Chapter 17 - Dividends and Dividend Policy
10. $ reverse stoc& split is defined as6 $. an $. an increase in the numer n umer of shares outstandin! that does not affect o;ners* equity. %. a %. a firm uyin! ac& eistin! e istin! shares of its stoc& on the open mar&et. C. a C. a firm sellin! ne; shares of stoc& on the open mar&et. D. a decrease in the numer of shares outstandin! that does not affect o;ner*s equity. '. a '. a decrease in oth the numer of shares outstandin! and the price per share. Refer to section 17.?
AACSB: N/A Bloom's: Knowledge Knowledge Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: &oic: (e!erse stoc2 slit
13. "hich one of the follo;in! statements related to cash dividends is correct# $. 'tra $. 'tra cash dividends cannot e repeated in the future. B. $ dividend is never a liaility until it has een declared. C. :f C. :f a firm has paid re!ular quarterly dividends for at least five consecutive years it is le!ally oli!ated to continue doin! so. D. Re!ular D. Re!ular cash dividends reduce paid-in capital. '. The '. The dividend yield epresses the annual dividend as a percenta!e of net income. Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Knowledge Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: &oic: Cas) di!idend
17-2?
Chapter 17 - Dividends and Dividend Policy
17. %illin!sley Bnited declared a /.(/ a share dividend on Thursday ctoer 13. The dividend ;ill e paid on Monday ovemer 1/ to shareholders of record on +riday ctoer 21. "hich one of the follo;in! is the e-dividend e -dividend date# $. Tuesday $. Tuesday ctoer (? B. "ednesday ctoer (@ C. Thursday C. Thursday ctoer 2/ D. "ednesday D. "ednesday ovemer 0 '. Thursday '. Thursday ovemer 3 Refer to section 17.1
AACSB: N/A Bloom's: Comre)ension Comre)ension Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: &oic: *+$di!idend date
1?. Taylor*s Tools Tools declared a /.8? a share dividend on +riday March 7. The dividend ;ill e paid on Monday $pril 7. The e-dividend e-dividend date is Tuesday Tuesday March 1?. "hat is the record date# $. +riday $. +riday March 18 %. Monday %. Monday March 17 C. "ednesday C. "ednesday March 1@ D. Thursday March (/ '. +riday '. +riday March (1 Refer to section 17.1
AACSB: N/A Bloom's: Comre)ension Comre)ension Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: (ecord date
17-2@
Chapter 17 - Dividends and Dividend Policy
1@. The last date on ;hich you can purchase shares of stoc& and still receive the dividend is the date ;hich is <<<<< usiness days prior to the date of record. $. 1 $. 1 %. ( %. ( C. 2 D. 8 D. 8 '. 0 '. 0 Refer to section 17.1
AACSB: N/A Bloom's: Comre)ension Comre)ension Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: &oic: *+$di!idend date
(/. Eate purchased 0// shares of +ast Deliveries stoc& on "ednesday "ednesday 4uly 7th. Ted purchased 1// shares of +ast Deliveries stoc& on Thursday 4uly ?th. +ast Deliveries declared a dividend on 4une (/th to shareholders of record on 4uly 1( th and payale on $u!ust 1st. "hich one of the follo;in! statements concernin! the dividend paid on $u!ust 1st is correct !iven this information# $. either $. either Eate nor no r Ted Ted is entitled to the dividend. B. Eate is entitled to the dividend ut Ted is not. C. Ted C. Ted is entitled to the dividend ut Eate is not. D. %oth D. %oth Ted and Eate are entitled to the dividend. '. %oth '. %oth Ted Ted and Eate are entitled to one-half of the dividend amount. Refer to section 17.1
AACSB: N/A Bloom's: Comre)ension Comre)ension Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: &oic: *+$di!idend date
17-8/
Chapter 17 - Dividends and Dividend Policy
(1. $ll else equal the mar&et value of a stoc& ;ill tend to decrease y rou!hly the afterta value of the dividend on the6 $. dividend declaration date. B. e-dividend date. C. date of record. D. date of payment. '. day after the date of payment. Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: *+$di!idend date
((. "hich one of the follo;in! statements related to dividend policy is correct# $. The primary question related to dividend policy is ;hether or not a firm should ever pay a dividend. %. %oth dividends and dividend policy are irrelevant. C. Dividend policy focuses on the timin! of dividend payments. D. Aomemade dividends increase the importance of a firm*s dividend policy decisions. '. "hether or not a firm ever pays a dividend is irrelevant to equity valuation. Refer to section 17.(
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$, Section: "#%, &oic: Di!idend olicy
17-81
Chapter 17 - Dividends and Dividend Policy
(2. $utomatic dividend reinvestment plans6 :. require that stoc&holders reinvest all of the dividends to ;hich they are entitled. ::. sometimes !rant shareholders the privile!e of purchasin! additional shares at a discounted price. :::. help shareholders create their o;n homemade dividend policies. :F. help ma&e corporate dividend policies irrelevant to individual stoc&holders. $. :: only %. ::: only C. :: and ::: only D. :: ::: and :F only '. : :: ::: and :F Refer to section 17.(.
AACSB: N/A Bloom's: Comre)ension Difficulty: ntermediate Learning Obecti!e: "#$, Section: "#%, &oic: Di!idend rein!estment lans
(8. "hich of the follo;in! tends to increase the aility of a shareholder to create his or her o;n homemade dividend policy# :. lo; taes on capital !ains ::. dividend reinvestment plans :::. lar!e holdin!s of shares :F. lo; cost equity purchases $. :: only %. :: and ::: only C. : :: and ::: only D. :: ::: and :F only E. : :: ::: and :F Refer to section 17.(
AACSB: N/A Bloom's: Comre)ension Difficulty: ntermediate Learning Obecti!e: "#$, Section: "#%, &oic: -omemade di!idend olicy
17-8(
Chapter 17 - Dividends and Dividend Policy
(0. "hich one of the follo;in! favors a lo; dividend policy# A. the ta on capital !ains is deferred until the !ain is reali,ed %. fe; if any positive net present value proects are availale to a firm C. a maority of the shareholders has a lo; relevant ta rate D. a maority of the shareholders has etter investment opportunities ;ith similar ris&s '. corporate ta rates eceed personal ta rates Refer to section 17.2
AACSB: N/A Bloom's: Comre)ension Difficulty: Basic Learning Obecti!e: "#$, Section: "#%3 &oic: Di!idend olicy
(3. The fact that flotation costs can e si!nificant is an ar!ument for6 $. a firm to issue lar!er dividends than its closest competitors. %. a firm to maintain a constant dividend policy even if it frequently has to issue ne; C. shares. D. maintainin! a constant dividend policy even ;hen profits decline si!nificantly. '. maintainin! a hi!h dividend policy. F. maintainin! a lo; dividend policy and rarely issuin! etra dividends. Refer to section 17.2
AACSB: N/A Bloom's: Comre)ension Difficulty: Basic Learning Obecti!e: "#$, Section: "#%3 &oic: 5lotation costs
17-82
Chapter 17 - Dividends and Dividend Policy
(7. "hich of the follo;in! tend to &eep dividends lo;# :. shareholders desirin! current income ::. terms contained in ond indenture a!reements :::. the desire to maintain constant dividends over time :F. flotation costs $. :: and ::: only %. : and :F only C. :: ::: and :F only D. : :: and ::: only '. : :: ::: and :F Refer to section 17.2
AACSB: N/A Bloom's: Comre)ension Difficulty: ntermediate Learning Obecti!e: "#$, Section: "#%3 &oic: Di!idend olicy
(?. "hich of the follo;in! shareholders tend to favor a hi!h dividend policy# :. retired individuals ::. endo;ment funds :::. corporate investors :F. investors ;ith hi!h dividend ta rates ut lo; capital !ains ta rates $. : and ::: only %. :: and :F only C. : :: and ::: only D. :: ::: and :F only '. : :: ::: and :F Refer to section 17.8
AACSB: N/A Bloom's: Comre)ension Difficulty: ntermediate Learning Obecti!e: "#$, Section: "#%0 &oic: Di!idend olicy
17-88
Chapter 17 - Dividends and Dividend Policy
(@. $n investor is more li&ely to prefer a hi!h dividend payout if a firm6 $. has hi!h flotation costs. B. has fe; if any positive net present value proects. C. has lo;er ta rates than the investor. D. has a stoc& price that is increasin! rapidly. '. offers sustantial !ains on its equities ;hich are taed at a favorale rate. Refer to section 17.8
AACSB: N/A Bloom's: Comre)ension Difficulty: Basic Learning Obecti!e: "#$, Section: "#%0 &oic: Di!idend olicy
2/. The information content of a dividend increase !enerally si!nals that6 $. the firm has a one-time surplus of cash. %. the firm has fe; if any net present value proects to pursue. C. mana!ement elieves earnin!s !ro;th ;ill e stron! !oin! for;ard. D. the firm has more cash than it needs due to a decline in future orders. '. dividends thereafter ;ill e lo;er. Refer to section 17.0
AACSB: N/A Bloom's: Comre)ension Difficulty: Basic Learning Obecti!e: "#$, Section: "#%. &oic: nformation content
17-80
Chapter 17 - Dividends and Dividend Policy
21. 9.). Moffatt :nc. has paid a quarterly dividend of 1.(/ per share for the last ten quarters. "hich one of the follo;in! is most apt to cause the firm to reduce the amount of its net dividend payment# $. decrease in the net quarter*s revenue %. decrease in the net quarter*s net income C. loss of a maor customer ;hich lo;ers the firm*s outloo& for the net fe; years D. maor lump sum cash outflo; net month to settle a class action product liaility la;suit on a product that is no lon!er produced '. decrease in the numer of ne; proects under consideration as compared to last year Refer to section 17.0
AACSB: N/A Bloom's: Comre)ension Difficulty: ntermediate Learning Obecti!e: "#$, Section: "#%. &oic: Di!idend olicy
2(. The dividend mar&et is in equilirium ;hen6 $. all firms adopt a lo; dividend policy. %. half of the firms adopt a lo; dividend policy and half adopt a hi!h dividend policy. C. all clienteles are satisfied. D. dividends remain constant and no special dividends are declared. '. the total amount of the annual dividends is equal to the net income for the year. Refer to section 17.0
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$, Section: "#%. &oic: Clientele effect
17-83
Chapter 17 - Dividends and Dividend Policy
22. "hich one of the follo;in! statements related to stoc& repurchases is correct# $. $n open mar&et stoc& repurchase increases the total ;ealth of a shareholder if you i!nore taes costs and mar&et imperfections. %. Tar!eted repurchases must e offered to all shareholders ut can e done in steps such that only a portion of the shareholders have the option to sell at any one point in time. C. "hen a firm ;ishes to repurchase shares in the open mar&et it ;ill do so in a special tradin! session that is set up y the 9'C. D. $ firm may spend more cash over the course of a year on stoc& repurchases than it does on cash dividends. '. Tender offer prices must e set equal to the openin! mar&et price on the day the tender offer is announced. Refer to section 17.3
AACSB: N/A Bloom's: Comre)ension Difficulty: ntermediate Learning Obecti!e: "#$0 Section: "#%1 &oic: Stoc2 reurc)ase
28. "hich one of the follo;in! statements related to stoc& repurchases is correct# $. B.9. industrial firms have increased their stoc& repurchases every year for each of the past t;enty years. %. $ stoc& repurchase can e used as a means for incument officers to retain control of a firm. C. $ tender offer indicates that a firm is ;illin! and ale to purchase ho; ever many shares the current shareholders ;ish to sell. D. $ll stoc& repurchases must e identified as such to the sellin! party. E. 9toc& repurchases can e a relatively ta-efficient method of distriutin! cash to shareholders. Refer to section 17.3
AACSB: N/A Bloom's: Comre)ension Difficulty: ntermediate Learning Obecti!e: "#$0 Section: "#%1 &oic: Stoc2 reurc)ase
17-87
Chapter 17 - Dividends and Dividend Policy
20. $ stoc& repurchase pro!ram6 $. requires all shareholders to sell a fraction of their shares. %. is preferred over a hi!h-dividend pro!ram only y ta-eempt shareholders. C. decreases oth the numer of shares outstandin! and the mar&et price per share. D. has no effect on a firm*s financial statements. E. is essentially the same as a cash dividend pro!ram provided there are no taes or other costs. Refer to section 17.3
AACSB: N/A Bloom's: Comre)ension Difficulty: ntermediate Learning Obecti!e: "#$0 Section: "#%1 &oic: Stoc2 reurc)ase
23. "hich one of the follo;in! is a result of a stoc& repurchase# $. increase in the numer of shares outstandin! %. increase in the mar&et price per share C. increase in the total equity of the repurchasin! firm D. decrease in 'P9 E. P' ratio equal to that resultin! from a comparale cash dividend Refer to section 17.3
AACSB: N/A Bloom's: Comre)ension Difficulty: ntermediate Learning Obecti!e: "#$0 Section: "#%1 &oic: Stoc2 reurc)ase
17-8?
Chapter 17 - Dividends and Dividend Policy
27. :f you i!nore taes and costs a stoc& repurchase ;ill6 :. reduce the total assets of a firm. ::. decrease the earnin!s per share. :::. reduce the P' ratio more so than an equivalent stoc& dividend. :F. reduce the total equity of a firm. $. : and ::: only B. : and :F only C. :: and :F only D. : ::: and :F only '. :: ::: and :F only Refer to section 17.3
AACSB: N/A Bloom's: Comre)ension Difficulty: ntermediate Learning Obecti!e: "#$0 Section: "#%1 &oic: Stoc2 reurc)ase
2?. 9teve o;ns 2/// shares of P :nc. stoc& ;hich he purchased si years a!o at a price of (( a share. Today these shares are sellin! for 3? each. $ssume the current ta la;s are such that 9teve is suect to a ta rate of (0 percent on oth his dividend income and his capital !ains. +rom 9teve*s point of vie; a stoc& repurchase today6 =:!nore costs> $. is equivalent to a cash dividend in all respects. B. is more desirale than a cash dividend in respect to taes. C. ;ill result in the same ta liaility as an equivalent cash dividend. D. is more hi!hly taed than a cash dividend. '. is totally unacceptale to him. Refer to section 17.7
AACSB: N/A Bloom's: Comre)ension Difficulty: ntermediate Learning Obecti!e: "#$0 Section: "#%# &oic: Stoc2 reurc)ase
17-8@
Chapter 17 - Dividends and Dividend Policy
2@. "hich one of the follo;in! statements correctly applies to B.9. industrial firms ased on the period of 1@?8 -(//8# $. 'arnin!s !ro;th rates tend to la! dividend !ro;th rates. %. Dividends tend to fluctuate si!nificantly from quarter to quarter. C. The percenta!e of these firms payin! dividends in (//8 ;as hi!her than in 1@?8. D. The total amount of dividends paid y these firms ;as !reater in (//8 than in 1@?8. '. on-dividend payin! firms in 1@?8 ;ere more apt to commence payin! re!ular dividends than to implement a stoc& repurchase pro!ram. Refer to section 17.7
AACSB: N/A Bloom's: Comre)ension Difficulty: Basic Learning Obecti!e: "#$, Section: "#%# &oic: Di!idend olicy
8/. "hich one of the follo;in! statements appears to e supported y the current dividend policies of B.9. industrial firms# $. +irms tend to increase the dividend amount per share even ;hen it*s unclear if the increase can e maintained. %. :nvestors no lon!er react to chan!es either up or do;n in dividends. C. e;er hi!h-!ro;th firms tend to pay lar!er dividends than mature firms. D. Dividends are still vie;ed y shareholders as a si!nal of a firm*s future outloo&. '. Mana!ers are no lon!er hesitant to lo;er dividend payments. Refer to section 17.7
AACSB: N/A Bloom's: Comre)ension Difficulty: Basic Learning Obecti!e: "#$, Section: "#%# &oic: Di!idend olicy
17-0/
Chapter 17 - Dividends and Dividend Policy
81. "hich one of the follo;in! statements is correct# $. +irms prefer to cut dividend payments rather than orro; money to fund a short-term cash need. %. 9hare repurchases tend to increase a!ency costs. C. Maintainin! a steady dividend is a &ey !oal of most dividend-payin! firms. D. Ta rates are the &ey factor in determinin! a firm*s dividend policy. '. 9toc& prices tend to i!nore epected chan!es in dividend payments. Refer to section 17.7
AACSB: N/A Bloom's: Comre)ension Difficulty: Basic Learning Obecti!e: "#$, Section: "#%# &oic: Di!idend olicy
8(. "hich of the follo;in! alance sheet accounts are affected y a small stoc& dividend# :. cash ::. common stoc& :::. retained earnin!s :F. capital in ecess of par value $. : and ::: only %. :: and ::: only C. :: and :F only D. :: ::: and :F only '. : :: ::: and :F Refer to section 17.?
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Small stoc2 di!idend
17-01
Chapter 17 - Dividends and Dividend Policy
82. $ small stoc& dividend is defined as a stoc& dividend of less than <<<<< percent. $. 1/ to 10 %. 10 to (/ C. (/ to (0 D. (0 to 2/ '. 2/ to 20 Refer to section 17.?
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Small stoc2 di!idend
88. "hich one of the follo;in! is a result of a small stoc& dividend# $. increase in retained earnin!s %. decrease in total o;ner*s equity C. decrease in cash D. decrease in capital in ecess of par value E. increase in common stoc& Refer to section 17.?
AACSB: N/A Bloom's: Comre)ension Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Small stoc2 di!idend
17-0(
Chapter 17 - Dividends and Dividend Policy
80. "hich of the follo;in! account alance chan!es occur as a result of a lar!e stoc& dividend# :. increase in common stoc& ::. decrease in capital in ecess of par :::. increase in capital in ecess of par :F. decrease in retained earnin!s $. : and ::: only %. :: and :F only C. : and :F only D. :: and ::: only '. : ::: and :F only Refer to section 17.?
AACSB: N/A Bloom's: Comre)ension Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Large stoc2 di!idend
83. Revol-Tech is a technolo!y firm ;ith ecellent !ro;th prospects. The firm ;ishes to do somethin! to ac&no;led!e the loyalty of the shareholders ut needs all of its availale cash to fund the firm*s rapid !ro;th. The mar&et price of the stoc& is currently tradin! at the upper end of its preferred tradin! ran!e. The firm is most apt to consider ;hich one of the follo;in! in this situation# $. liquidatin! dividend B. stoc& split C. reverse stoc& split D. small stoc& dividend '. special cash dividend Refer to section 17.?
AACSB: N/A Bloom's: Analysis Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
17-02
Chapter 17 - Dividends and Dividend Policy
87. "hich t;o of the follo;in! are the est ustifications for a reverse stoc& split# :. comine a reverse stoc& split ;ith a stoc& repurchase to enale a firm to !o dar& ::. increase the respectaility of the stoc& :::. avoid delistin! :F. reduce transaction costs for shareholders $. : and :: only B. : and ::: only C. :: and ::: only D. :: and :F only '. ::: and :F only Refer to section 17.?
AACSB: N/A Bloom's: Comre)ension Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: (e!erse stoc2 slit
8?. $ stoc& split6 $. increases the total value of the common stoc& account. %. decreases the value of the retained earnin!s account. C. increases the par value per share. D. increases the value of the capital in ecess of par account. E. decreases the mar&et value per share. Refer to section 17.?
AACSB: N/A Bloom's: Comre)ension Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
17-08
Chapter 17 - Dividends and Dividend Policy
8@. 9toc& splits can e used to6 A. adust the mar&et price of a stoc& such that it falls ;ithin a preferred tradin! ran!e. %. decrease the ecess cash held y a firm therey lo;erin! a!ency costs. C. increase oth the numer of shares outstandin! and the mar&et price per share. D. increase the total equity of a firm. '. adust the det-equity ratio. Refer to section 17.?
AACSB: N/A Bloom's: Comre)ension Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
0/. "hich one of the follo;in! is a direct result of a (-for-1 stoc& split# $. a 1// percent increase in the numer of shareholders %. a 1// percent increase in the common stoc& account alance C. a 1// percent decrease in the stoc& price D. a 0/ percent increase in the numer of shares outstandin! E. a 0/ percent decrease in the par value per share Refer to section 17.?
AACSB: Analytical Bloom's: Comre)ension Difficulty: ntermediate Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
17-00
Chapter 17 - Dividends and Dividend Policy
01. 9li!o Minerals stoc& is currently tradin! at 3 a share. The firm elieves its primary clientele can afford to spend et;een 10// and (/// to purchase a round lot of 1// shares. The firm should consider a6 A. reverse stoc& split. %. liquidatin! dividend. C. stoc& dividend. D. stoc& split. '. special dividend. Refer to section 17.?
AACSB: N/A Bloom's: Analysis Difficulty: ntermediate Learning Obecti!e: "#$3 Section: "#%4 &oic: (e!erse stoc2 slit
0(. $ one-for-four reverse stoc& split ;ill6 $. increase the par value y (0 percent. %. increase the numer of shares outstandin! y 8// percent. C. increase the mar&et value ut not affect the par value per share. D. increase a 1 par value to 8. '. increase a 1 par value to 0. Refer to section 17.?
AACSB: Analytical Bloom's: Analysis Difficulty: ntermediate Learning Obecti!e: "#$3 Section: "#%4 &oic: (e!erse stoc2 slit
17-03
Chapter 17 - Dividends and Dividend Policy
02. $ firm ;ants to maintain a minimum stoc& price of 10 a share. Due to a recent mar&et do;nturn the stoc& is currently sellin! for 3 a share. The firm should consider a6 $. 2-for-1 stoc& split. %. 8-for-1 stoc& split. C. 1-for-2 reverse stoc& split. D. 1-for-8 reverse stoc& split. '. 1-for-0 reverse stoc& split. Refer to section 17.?
AACSB: Analytical Bloom's: Analysis Difficulty: ntermediate Learning Obecti!e: "#$3 Section: "#%4 &oic: (e!erse stoc2 slit
08. Plyler Cainets declared a dividend of 1.(/ a share on May 10 to holders of record on Monday 4une 1. The dividend is payale on 4une 10. 9ara purchased 0// shares of Plyler Cainets stoc& on +riday May (@. Ao; much dividend income ;ill she receive on 4une 10 from Plyler Cainets# A. / %. /.?/ C. 1.3/ D. 13/.// '. 2(/.// 9ara ;ill not receive any dividend income ecause she purchased the shares after the edividend date.
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: *+$di!idend date
17-07
Chapter 17 - Dividends and Dividend Policy
00. 9teve purchased 2// shares of $lpha %eta stoc& on May @. n May 10 he purchased another (// shares and then on May (( he purchased a final 8// shares of $lpha %eta stoc&. The company declared a dividend of 1.3/ a share on $pril 2/ to holders of record on +riday May (2. The dividend is payale on 4une (. Ao; much dividend income ;ill 9teve receive on 4une ( from $lpha %eta# $. / %. 8?/ C. ?// D. 1(// '. 188/ Dividend received I 1.3/=2// J (//> I ?//
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: *+$di!idend date
03. n 4uly 7 you purchased 0// shares of "a!oneer :nc. stoc& for (1 a share. n $u!ust 1 you sold (// shares of this stoc& for (? a share. ou sold an additional 1// shares on $u!ust 17 at a price of (0 a share. The company declared a /.@0 per share dividend on $u!ust 8 to holders of record as of "ednesday $u!ust 10. This dividend is payale on 9eptemer 1. Ao; much dividend income ;ill you receive on 9eptemer 1 as a result of your o;nership of "a!oneer stoc $. / %. 1@/ C. (?0 D. 23/ '. 870 Dividend received I /.@0 × =0// - (//> I (?0
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$" Section: "#%" &oic: *+$di!idend date
17-0?
Chapter 17 - Dividends and Dividend Policy
07. "ester Bnited is payin! a 1.1/ per share dividend today. There are 20//// shares outstandin! ;ith a mar&et price of (2 per share. :!nore taes. %efore the dividend the company had earnin!s per share of 1.78. $s a result of this dividend the6 $. retained earnin!s ;ill decrease y 20////. %. retained earnin!s ;ill increase y 2?0///. C. total firm value ;ill not chan!e. D. earnin!s per share ;ill increase to (.?8. E. price-earnin!s ratio ;ill e 1(.0@. Price-earnin!s ratio after the dividend I =(2 - 1.1/>K1.78 I 1(.0@
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$, Section: "#%1 &oic: 6rice$earnings ratio
0?. ou o;n ((// shares of Deltona Aard;are. The company has stated that it plans on issuin! a dividend of /.8( a share at the end of this year and then issuin! a final liquidatin! dividend of (.@/ a share at the end of net year. our required rate of return on this security is 13 percent. :!norin! taes ;hat is the value of one share of this stoc& to you today# $. (.2/ %. (.82 C. (.0( D. (.@( '. 2.2( Falue per share I =/.8(K1.131> J =(.@/K1.13(> I (.0(
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$" Section: "#%, &oic: Stoc2 !alue
17-0@
Chapter 17 - Dividends and Dividend Policy
0@. $l o;ns ?// shares of The Good )ife Co. The company recently issued a statement that it ;ill pay a dividend per share of /.00 this year and a /.3/ per share dividend net year. $l does not ;ant any dividend income this year ut does ;ant as much dividend income as possile net year. $l earns ?.0 percent on his investments. :!norin! taes ;hat ;ill $l*s total homemade dividend e net year# $. @1/.(/ %. @(/.// C. @2/.0/ D. @81.?/ E. @07.8/ Aomemade dividend income for net year I L=/.00 × 1./?0> J /.3/ × ?// I @07.8/
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$, Section: "#%, &oic: -omemade di!idend
3/. 4ennin!ston Mills has a mar&et value equal to its oo& value. Currently the firm has ecess cash of 1(// other assets of 0?// and equity valued at 270/. The firm has (0/ shares of stoc& outstandin! and net income of 8(/. "hat ;ill the ne; earnin!s per share e if the firm uses (0 percent of its ecess cash to complete a stoc& repurchase# A. 1.?2 %. 1.?@ C. 1.@3 D. (.// '. (./? Price per share I 270/K(0/ I 10 umer of shares repurchased I =/.(0 × 1(//>K10 I (/ shares e; 'P9 I 8(/K=(0/ - (/> I 1.?2
AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Obecti!e: "#$0 Section: "#%1 &oic: Stoc2 reurc)ase
17-3/
Chapter 17 - Dividends and Dividend Policy
31. %lasco*s has a mar&et value equal to its oo& value. Currently the firm has ecess cash of 122( other assets of 11378 and equity of 7(//. The firm has 3// shares of stoc& outstandin! and net income of ?2?. %lasco*s has decided to spend one-third of its ecess cash on a share repurchase pro!ram. Ao; many shares of stoc& ;ill e outstandin! after the stoc& repurchase is completed# $. 027 shares %. 00/ shares C. 032 shares D. 07? shares '. 0?8 shares Price per share I 7(//K3// I 1( umer of shares repurchased I L=1K2> × 122(K1( I 27 e; numer of shares outstandin! I 3// - 27 I 032 shares
AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Obecti!e: "#$0 Section: "#%1 &oic: Stoc2 reurc)ase
3(. Tuc&er*s ational Distriutin! has a current mar&et value of equity of 1 /330. Currently the firm has ecess cash of 38/ total assets of ((8// net income of 2(1/ and 0// shares of stoc& outstandin!. Tuc&er*s is !oin! to use all of its ecess cash to repurchase shares of stoc&. "hat ;ill the stoc& price per share e after the stoc& repurchase is completed# $. (/.?7 %. (/.@8 C. (1./3 D. (1.22 '. (1.8( Current price per share I 1/330K0// I (1.22 umer of shares repurchased I 38/K(1.22 I 2/ e; numer of shares outstandin! I 0// - 2/ I 87/ e; equity I 1/330 - 38/ I 1//(0 e; price per share I 1//(0K87/ I (1.22
AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Obecti!e: "#$0 Section: "#%1 &oic: Stoc2 reurc)ase
17-31
Chapter 17 - Dividends and Dividend Policy
32. The equity of %loomin! Roses has a total mar&et value of 13///. Currently the firm has ecess cash of 1(// and net income of 108//. There are 70/ shares of stoc& outstandin!. "hat ;ill e the percenta!e chan!e in the stoc& price per share if the firm pays out all of its ecess cash as a cash dividend# $.
[email protected]/ percent B. -7.0/ percent C. -0.?/ percent D. -(.70 percent '. /.// percent Price per share efore cash dividend I 13///K70/ I (1.22 Price per share after cash dividend I =13/// - 1(//>K70/ I
[email protected] Percenta!e chan!e in price I =
[email protected] - (1.22>K(1.22 I -7.0/ percent
AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%1 &oic: *+$di!idend stoc2 rice
38. Dela;are Trust has 80/ shares of common stoc& outstandin! at a mar&et price per share of (7. Currently the firm has ecess cash of 8// total assets of (?@// and net income of 12(/. The firm has decided to pay out all of its ecess cash as a cash dividend. "hat ;ill the earnin!s per share e after this dividend is paid# $. (.3@ %. (.?3 C. (.@2 D. 2./7 '. 2.(8 'arnin!s per share I 12(/K80/ I (.@2
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%1 &oic: Cas) di!idend
17-3(
Chapter 17 - Dividends and Dividend Policy
30. 4osh*s :nc. has 7/// shares of stoc& outstandin! ;ith a par value of 1.// per share and a mar&et value of 2( a share. The alance sheet sho;s 73/// in the capital in ecess of par account 7/// in the common stoc& account and 38?// in the retained earnin!s account. The firm ust announced a 1/ percent stoc& dividend. "hat is the value of the capital in ecess of par account after the dividend# $. 0/3// %. 082// C. 73/// D. @77// '. 1/18// Chan!e in capital in ecess of par I =7/// shares × /.1/> × =2( - 1> I (17// e; capital in ecess of par account alance I 73/// J (17// I @77/ /
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$0 Section: "#%4 &oic: Small stoc2 di!idend
33. Randall*s :nc. has (//// shares of stoc& outstandin! ;ith a par value of 1.// per share. The mar&et value is 1( per share. The alance sheet sho;s 8(/// in the capital in ecess of par account (//// in the common stoc& account and 0/0// in the retained earnin!s account. The firm ust announced a 0 percent =small> stoc& dividend. "hat ;ill the alance in the retained earnin!s account e after the dividend# A. 2?0// %. 2@0// C. 0/0// D. 310// '. 3(0// Retained earnin!s I L=(//// shares × /./0> × 1( × -1 J 0/0// I 2?0//
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Small stoc2 di!idend
17-32
Chapter 17 - Dividends and Dividend Policy
37. 9outhern +ried Chic&en has ?/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et value of 28 per share. The alance sheet sho;s 2@/// in the capital in ecess of par account ?/// in the common stoc& account and 10(/// in the retained earnin!s account. The firm ust announced a 0 percent stoc& dividend. "hat ;ill total o;ners* equity e after the dividend# $. 1?0?// %. 1@3/// C. 1@@/// D. (/3?// '. (1((// Total equity ;ill not chan!e as this is a small stoc& dividend. Total equity I 2@/// J ?/// J 10(/// I 1@@///
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Small stoc2 di!idend
3?. Fal*s Marina 9upply has 20// shares of stoc& outstandin! ;ith a par value of 1.// per share and a mar&et value of 1@ per share. The alance sheet sho;s 20// in the common stoc& account (8/// in the capital in ecess of par account and 218// in the retained earnin!s account. The firm ust announced a 1// percent stoc& dividend. "hat is the value of the capital in ecess of par account after the dividend# $. / %. (/0// C. (8/// D. 000// '. ?7/// The capital in ecess of par account ;ill remain at (8/// as it does not chan!e ;ith a lar!e stoc& dividend.
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Large stoc2 di!idend
17-38
Chapter 17 - Dividends and Dividend Policy
3@. Eurt*s Mar&et has ?/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et value of 12 per share. The alance sheet sho;s ?/// in the common stoc& account (3/// in the capital in ecess of par account and 2(7// in the retained earnin!s account. The firm ust announced a 1// percent stoc& dividend. "hat ;ill e the alance in the retained earnin!s account after this dividend# $. / B. (87// C. 2(7// D. 8/7// '. 1(?7// Retained earnin!s I 2(7// - L=?/// shares × 1./> × 1 I (87//
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Large stoc2 di!idend
7/. The Tannin! %ed has 1//// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et value of ? per share. The alance sheet sho;s 1//// in the common stoc& account 3//// in the capital in ecess of par account and @82// in the retained earnin!s account. The firm ust announced a 1// percent stoc& dividend. "hat ;ill e the value of the common stoc& account after the dividend# $. 0/// %. 1//// C. 11/// D. 10/// E. (//// Common stoc& I L=1//// shares × 1./> × 1 J 1//// I (////
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Large stoc2 di!idend
17-30
Chapter 17 - Dividends and Dividend Policy
71. Feral Communications :nc. has 18/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et value of 83 per share. The firm ust announced a 1// percent stoc& dividend. "hat is the mar&et value per share after the dividend# A. (2.// %. 28.0/ C. 83.// D. 3@.// '. @(.// Mar&et value per share I =18/// × 83>K=18/// × (> I (2
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Large stoc2 di!idend
7(. Della*s Pool Aalls has 1(/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et price of 2@ a share. The firm ust announced a 8-for-2 stoc& split. Ao; many shares of stoc& ;ill e outstandin! after the split# $. @/// shares %. 1//// shares C. 1(/// shares D. 183// shares E. 13/// shares umer of shares I 1(/// × 8K2 I 13/// shares
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
17-33
Chapter 17 - Dividends and Dividend Policy
72. $lfon,o*s :talian Aouse has (0/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et price of 23 a share. The firm ust announced a 0-for-2 stoc& split. "hat ;ill the mar&et price per share e after the split# A. (1.3/ %. (8.(/ C. 23.// D. 08.// '. 3/.// Mar&et price per share I 23 × 2K0 I (1.3/
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
78. 9outh 9hore )imited has (1/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et price of 7.0/ a share. The firm ust announced a 0-for-( stoc& split. "hat ;ill the par value of the stoc& e after the split# A. /.8/ %. /.?/ C. 1.// D. 1.8/ '. 1.3/ Par value I 1 × =(K0> I /.8/
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
17-37
Chapter 17 - Dividends and Dividend Policy
70. Mario*s has 1?/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et price of 8 a share. The alance sheet sho;s 1?/// in the common stoc& account 223/// in the paid in surplus account and 38/// in the retained earnin!s account. The firm ust announced a 0-for-1 stoc& split. "hat ;ill the paid in surplus account value e after the split# $. 33/// B. 223/// C. 8(3/// D. 08?/// '. 3/3/// $ stoc& split does not chan!e the total value of the paid in surplus account.
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
73. Pre,ario*s has (0/// shares of stoc& outstandin! ;ith a par value of 1 per share. The current mar&et value of the firm is ?87///. Currently the retained earnin!s account alance is 8(?/// and the capital in ecess of par value account alance is 1?7///. The company ust announced a 2-for-1 stoc& split. "hat is the common stoc& account alance after the stoc& split# $. ?222 B. (0/// C. 70/// D. 77222 '. (2(/// Common stoc& account value efore the stoc& split I (0/// × 1 I (0/// $ stoc& split does not chan!e the total value of the common stoc& account.
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
17-3?
Chapter 17 - Dividends and Dividend Policy
77. The Peanut 9hac& has 3/// shares of stoc& outstandin! ;ith a par value of 1 per share. The current mar&et value of the firm is 1803//. The company ust announced a 2-for-( stoc& split. "hat ;ill the mar&et price per share e after the split# $. 1(.18 B. 13.1? C. (8.(7 D. (?.(/ '. 23.8/ Mar&et price per share I =1803//K3///> × (K2 I 13.1?
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
7?. "estern Mountain "ater has 11/// shares of stoc& outstandin! ;ith a par value of 1 per share. The current mar&et value of the firm is 120///. The alance sheet sho;s a capital in ecess of par value account alance of 3?/// and retained earnin!s of 8@///. The company ust announced a (-for-1 stoc& split. "hat ;ill the capital in ecess of par value account alance e after the split# $. 80222 %. 08337 C. 3?/// D. ?3337 '. 1/(/// The paid in surplus account ;ill remain at 3?/// as a stoc& split has no effect on this account.
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
17-3@
Chapter 17 - Dividends and Dividend Policy
7@. The Peace River Corporation has 37/// shares of stoc& outstandin! at a mar&et price of 8? a share. The company has ust announced a 2-for-( stoc& split. Ao; many shares of stoc& ;ill e outstandin! after the split# $. 88337 shares %. 08222 shares C. ?@222 shares D. 1//0// shares '. 1/?333 shares umer of shares I 37/// × 2K( I 1//0// shares
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
?/. Cooper %rands :nc. has 3?/// shares of stoc& outstandin! at a mar&et price of 32 a share. The par value is 1 per share. The company has ust announced a 0-for-8 stoc& split. "hat ;ill the mar&et price per share e after the split# A. 0/.8/ %. 0?.(/ C. 3(.0/ D. 7?.70 '. ?(.0/ Mar&et price per share I 32 × 8K0 I 0/.8/
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
17-7/
Chapter 17 - Dividends and Dividend Policy
?1. The Minin! Co. has (//// shares of stoc& outstandin!. The current mar&et value of the firm is 2(?///. The company has retained earnin!s of (7/// capital in ecess of par value of 13//// and a common stoc& account value of (////. The company is plannin! a (-for-0 reverse stoc& split. "hat ;ill the par value per share e after the split# $. /.10 %. /.(/ C. 1.// D. (.0/ '. 0.// Par value per share I =(////K(//// shares> × 0K( I (.0/
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: (e!erse stoc2 slit
?(. 'ast Coast Marina has ((//// shares of stoc& outstandin!. The current mar&et value of the firm is 1?.@( million. The company has retained earnin!s of 2.? million paid in surplus of 3.7 million and a common stoc& account value of ((////. The company is plannin! a 2-for-( stoc& split. "hat ;ill the mar&et price per share e after the split# $. (?.37 B. 07.22 C. 33.37 D. 1/?.// '. 1(@.// Mar&et price per share I =1?.@(mK((//// shares> × (K2 I 07.22
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
17-71
Chapter 17 - Dividends and Dividend Policy
?2. 4ean*s "arehouse has 13/// shares of stoc& outstandin!. The current mar&et value of the firm is 73?///. The company has retained earnin!s of 1(2/// paid in surplus of 2(1/// and a common stoc& account value of 13///. The company is plannin! a 0-for-2 stoc& split. "hat ;ill the retained earnin!s account value e after the split# $. 72?// B. 1(2/// C. 1023// D. (/0/// '. (800// The retained earnin!s ;ill remain at 1(2/// as a stoc& split does not affect the alance.
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
?8. The common stoc& of Chec&ers :nc. is sellin! for 03 a share and the par value per share is 1. Currently the firm has a total mar&et value of ?1(///. Ao; many shares of stoc& ;ill e outstandin! if the firm does a 2-for-( stoc& split# $. @337 shares %. 1(0// shares C. 180// shares D. 1770/ shares E. (170/ shares umer of shares I =?1(///K03> × 2K( I (170/ shares
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
17-7(
Chapter 17 - Dividends and Dividend Policy
?0. The common stoc& of Gillen 'ntertainment is sellin! for 7? a share. The par value per share is 1. Currently the firm has a total mar&et value of @23///. Ao; many shares of stoc& ;ill e outstandin! if the firm does a 0-for-( stoc& split# $. 8?// shares %. @3// shares C. 10/// shares D. 2//// shares '. 2((// shares umer of shares I =@23///K7?> × 0K( I 2//// shares
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 slit
?3. Purvis )a;n Products has 1?/// shares of stoc& outstandin! at a mar&et price of 0.0/ a share. "hat ;ill the mar&et price per share e if the company does a 1-for-8 reverse stoc& split# $. 1.2? %. 0.0/ C. 11.// D. 13.0/ E. ((.// Mar&et price I 0.0/ × 8K1 I ((
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: (e!erse stoc2 slit
17-72
Chapter 17 - Dividends and Dividend Policy
?7. The live Fase has 03/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et value of 11 a share. The company ust announced a 2-for-8 reverse stoc& split. Currently you o;n 8// shares of this stoc&. "hat ;ill the total value of your shares e after the reverse stoc& split# $. 22// B. 88// C. 00// D. 0?37 '. 3222 The total value of your shares ;ill not chan!e. Total value I 8//=2K8> × 11=8K2> I 88//
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: (e!erse stoc2 slit
??. The Green +lorist has (?/// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et value of 7 a share. The company ust announced a (-for-0 reverse stoc& split. Currently you o;n 2// shares of this stoc&. Ao; many shares ;ill you o;n after the reverse stoc& split# $. 3/ shares %. 1(/ shares C. 8?/ shares D. 3// shares '. 70/ shares umer of shares I 2// × (K0 I 1(/ shares
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: (e!erse stoc2 slit
17-78
Chapter 17 - Dividends and Dividend Policy
?@. City Center Pharmacy has 110// shares of stoc& outstandin! ;ith a par value of 1 per share and a mar&et value of 1/ a share. The company ust announced a 2-for-7 reverse stoc& split. "hat ;ill the mar&et value per share e after the reverse stoc& split# $. 8.(@ %. 7.// C. 1/.// D. (2.22 '. (0.(1 Mar&et value per share I 1/ × 7K2 I (2.22
AACSB: Analytic Bloom's: Alication Difficulty: Basic Learning Obecti!e: "#$3 Section: "#%4 &oic: (e!erse stoc2 slit
17-70
Chapter 17 - Dividends and Dividend Policy
Essay Questions
@/. ou are the C+ of a non-dividend payin! firm that currently has ecess cash reserves. ou are preparin! for an internal mana!ement meetin! ;here dividends are on the a!enda. ou &no; that the C' favors the commencement of a dividend pro!ram. ou ho;ever oppose any dividend plan at this time. "rite a !ood ar!ument that you can use in the meetin! to support your position. "hile it is true that the firm currently has ecess cash reserves those reserves c an est e utili,ed to fund positive PF proects ;hich ;ill increase the value of the firm and thus the value of the shares held y our current shareholders. This increase in value does not create any ta liaility for those shareholders until or unless they op t to sell their shares. Dividends on the other hand ;ill create an immediate ta liaility for the maority of our shareholders ;ho don*t need or prefer dividend income at this time. :f ;e commence a dividend pro!ram ;e may find that our clientele chan!es ;hich is not one of our current !oals. :n addition once ;e pay a dividend ;e need to e prepared to maintain that dividend as any decrease in the dividend at a later date ;ould send the ;ron! messa!e to our shareholders and to the mar&et. )astly should ;e deplete our ecess cash reserves y implementin! a dividend pro!ram ;e mi!ht find ourselves in the uncomfortale position of see&in! additional equity financin! ;hich ;ould e epensive and possily also dilutive to our shareholders. +eedac&6 Refer to section 17.0
AACSB: (eflecti!e t)in2ing Bloom's: Analysis Difficulty: ntermediate Learning Obecti!e: "#$, Section: "#%. &oic: Di!idend olicy
17-73
Chapter 17 - Dividends and Dividend Policy
@1. 'plain the meanin! of the dividend clientele effect and ;hy it is important. There are certain !roups that prefer lo; dividend payouts and certain !roups that prefer hi!h dividend payoutsH these are dividend clienteles. :f clienteles eist then ;henever a firm chan!es its dividend policy it ust s;aps one clientele for another. :n the end the firm cannot affect its value y ma&in! chan!es in its dividend policy unless there are unsatisfied clienteles. +eedac&6 Refer to section 17.0
AACSB: (eflecti!e t)in2ing Bloom's: Comre)ension Difficulty: Basic Learning Obecti!e: "#$, Section: "#%. &oic: Cliente les
17-77
Chapter 17 - Dividends and Dividend Policy
@(. 9toc& repurchase pro!rams appear to ecomin! more popular ;ith usiness firms. 'plain the appeal of these pro!rams as compared to that of cash dividend pro!rams from the stoc& issuer*s point of vie;. %oth stoc& repurchase and cash dividend pro!rams are mechanisms for transferrin! ecess funds from a corporation to its shareholders. Dividend pro!rams once commenced require an on!oin! cash outflo; that is difficult to reduce or terminate. 9toc& repurchase pro!rams on the other hand are structured such that a firm can control oth the timin! and the amount of the cash outflo;s. "hile a stoc& repurchase pro!ram is frequently announ ced there is no commitment to actually purchase the shares. This provides a lot more fleiility to the firm than a dividend pro!ram. +eedac&6 Refer to section 17.3
AACSB: (eflecti!e t)in2ing Bloom's: Analysis Difficulty: ntermediate Learning Obecti!e: "#$0 Section: "#%1 &oic: Stoc2 reurc)ase
@2. :dentify some real-;orld factors ;hich mi!ht ma&e it more difficult for an individual to effectively create a homemade dividend policy. 9tudents should address factors such as taes transaction costs and investment earnin!s. :f sellin! 1// of securities is not equal to receivin! 1// of dividend income on an afterta asis then investors ;ill have a preference for one over the other. 9ellin! small amounts of securities on a frequent asis tends to result in si!nificant transaction costs ma&in! such tradin! undesirale. Receivin! dividend income today and then investin! that income for a short period of time say a year or t;o may yield less than desirale results if the interest rate availale for such investments is lo; ;hich ;ould !enerally e the case for many shareholders. Thus effectively creatin! a homemade dividend policy may not e as simple as it sounds especially for investors ;ith smaller portfolios. +eedac&6 Refer to section 17.(
AACSB: (eflecti!e t)in2ing Bloom's: Analysis Difficulty: ntermediate Learning Obecti!e: "#$, Section: "#%, &oic: -omemade di!idend
17-7?
Chapter 17 - Dividends and Dividend Policy
@8. 'plain ho; cash dividends affect individual shareholders differently than an equal amount of funds spent on a repurchase. Dividends are payale to all shareholders on an equal per share asis ;ith the income taed as dividend income ;hen received. 9hareholders have no control over the timin! of this dividend income and thus no control over the timin! of their ta liaility. $ repurchase affects only those shareholders ;ho opt to sell shares. The shareholders ;ho participate in a repurchase ;ill !enerally pay taes at the capital !ains rate ;ith the ta liaility created at the time of sale ;hich is controlled y the shareholder. 9hareholders ;ho do not participate in the repurchase pro!ram receive no cash and incur no taes. Thus a repurchase allo;s shareholders to control the timin! of their income and their related ta liaility. $lso it should e noted that investor preferences for either dividends or capital !ains depends upon the ta la;s that are in eistence at a particular point in time. +eedac&6 Refer to section 17.3
AACSB: (eflecti!e t)in2ing Bloom's: Analysis Difficulty: ntermediate Learning Obecti!e: "#$0 Section: "#%1 &oic: Stoc2 reurc)ase !ersus cas) di!idend
17-7@
Chapter 17 - Dividends and Dividend Policy
Multiple Choice Questions
@0. The Green +iddle has declared an ? per share dividend. 9uppose capital !ains are not taed ut dividends are taed at 10 percent. e; :R9 re!ulations require that taes e ;ithheld at the time the dividend is paid. Green +iddle stoc& sells for 71.0/ per share and the stoc& is aout to !o e-dividend. "hat ;ill the e-dividend price e# A. 38.7/ %. 37.@/ C. 7?.2/ D.
[email protected]/ '. ?(.(2 '-dividend price I 71.0/ - L? × =1 - /.10> I 38.7/
AACSB: Analytic Bloom's: Alication Difficulty: Basic *OC 7: "#$" Learning Obecti!e: "#$" Section: "#%" &oic: *+$di!idend rice
17-?/
Chapter 17 - Dividends and Dividend Policy
@3. The o;ners* equity accounts for %lues;ell :ndustries are sho;n here6
:f %lues;ell :ndustries declares a 1-for-0 reverse stoc& split there ;ill e <<<< shares outstandin! at a par value of <<<<< per share. $. 1?//H 1.// B. 1?//H 0.// C. @///H 0.// D. 80///H /.(/ '. 80///H 1.// e; shares I @/// × 1K0 I 1?// shares e; par value I 1 × 0K1 I 0
AACSB: Analytic Bloom's: Alication Difficulty: Basic *OC 7: "#$3 Learning Obecti!e: "#$3 Section: "#%4 &oic: (e!erse stoc2 slit
@7. The Turtle Cave currently has 13//// shares of stoc& outstandin! that sell for 3/ per share. $ssume no mar&et imperfections or ta effects eist. "hat ;ill the ne; share price e if the firm declares a 10 percent stoc& dividend# $. 8?.7( B. 0(.17 C. 3/.// D. 38.0/ '. 3@.// e; price I 3/ =1K1.10> I 0(.17
AACSB: Analytic Bloom's: Alication Difficulty: Basic *OC 7: "#$0 Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 di!idend
17-?1
Chapter 17 - Dividends and Dividend Policy
@?. Glendale Pavin! currently has 1(//// shares of stoc& outstandin! that sell for 08 per share. $ssume no mar&et imperfections or ta effects eist. "hat ;ill the ne; share price e if the firm declares a 8/ percent stoc& dividend# $. 21.1( %. 2(./? C. 20.1@ D. 2?.07 '. 8/.// e; price I 08 =1K1.8/> I 2?.07
AACSB: Analytic Bloom's: Alication Difficulty: Basic *OC 7: "#$0 Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 di!idend
17-?(
Chapter 17 - Dividends and Dividend Policy
@@. The alance sheet for $pple Pie Corp. is sho;n here in mar&et value terms. There are 8/// shares of stoc& outstandin!.
The company has declared a dividend of 1.?/ per share. The stoc& !oes e-dividend tomorro;. :!nore any ta effects. "hat ;ill the price of the stoc& e tomorro;# $. 1?.@/ %. 23.(/ C. 8@.@0 D. 0(.10 '. 71.?/ Tomorro;*s stoc& price I =(/7///K8///> - 1.?/ I 8@.@0
AACSB: Analytic Bloom's: Alication Difficulty: Basic *OC 7: "#$. Learning Obecti!e: "#$" Section: "#%" &oic: Cas) di!idend
17-?2
Chapter 17 - Dividends and Dividend Policy
1//. The alance sheet for $pple Pie Corp. is sho;n here in mar&et value terms. There are 0/// shares of stoc& outstandin!.
The company has announced that it is !oin! to repurchase 820/ ;orth of stoc&. "hat ;ill the price of the stoc& e after this repurchase# A. 20.// %. 23.1@ C. 2@.(1 D. 8(.0/ '. 82.22 Current price per share I 170///K0/// I 20 umer of shares repurchased I 820/K20 I 1(8.(@ e; shares outstandin! I 0/// - 1(8.(@ I 8?70.71 e; share price I =170/// - 820/>K8?70.71 I 20
AACSB: Analytic Bloom's: Analysis Difficulty: Basic *OC 7: "#$1 Learning Obecti!e: "#$0 Section: "#%1 &oic: Stoc2 reurc)ase
17-?8
Chapter 17 - Dividends and Dividend Policy
1/1. The mar&et value alance sheet for :no Manufacturin! is sho;n here. :no has declared a (2 percent stoc& dividend. The stoc& !oes e-dividend tomorro; =the chronolo!y for a stoc& dividend is similar to that for a cash dividend>. There are 12/// shares outstandin!. "hat is the e-dividend stoc& price#
$. (1.(1 B. (2.01 C. (0./3 D. (3.?3 '. (?.@( e; price I 273///K=12/// × 1.(2> I (2.01
AACSB: Analytic Bloom's: Analysis Difficulty: Basic *OC 7: "#$# Learning Obecti!e: "#$3 Section: "#%4 &oic: Stoc2 di!idend
17-?0
Chapter 17 - Dividends and Dividend Policy
1/(. ou o;n 1/// shares of stoc& in $vondale Corporation. ou ;ill receive an ?/-cent per share dividend in one year. :n t;o years $vondale ;ill pay a liquidatin! dividend of 8/ per share. The required return on $vondale stoc& is 18 percent. "hat ;ill your dividend income e this year if you use homemade dividends to create t;o equal annual dividend payments# $. 101?8 %. 10@?/ C. 1?337 D. 1@117 '. (/8// P/ I =/.?/K1.18> J =8/K1.18(> I 21.8? 21.8? I =DK1.18> J =DK1.18(>H D I
[email protected] Dividend income I 1/// ×
[email protected] I 1@117
AACSB: Analytic Bloom's: Analysis Difficulty: ntermediate *OC 7: "#$"0 Learning Obecti!e: "#$, Section: "#%, &oic: -omemade di!idend
17-?3
Chapter 17 - Dividends and Dividend Policy
1/2. ou o;n 1/// shares of stoc& in $vondale Corporation. ou ;ill receive a /.?/ per share dividend in one year. :n t;o years $vondale ;ill pay a liquidatin! dividend of 20 per share. The required return on $vondale stoc& is 13 percent. ou only ;ant (// total in dividends in year one and accomplish this y usin! homemade dividends. "hat ;ill your total dividend amount e in year t;o# $. 17@// %. (/738 C. 203@3 D. 818/( '. 82?7? Dividends received in one year I 1/// × /.?/ I ?// Price of stoc& in one year I 20K1.13 I 2/.17(8 umer of shares purchased I =?// - (//>K2/.17(8 I 1@.??07 shares Dividend in year t;o I 20 × =1/// J 1@.??07> I 203@3
AACSB: Analytic Bloom's: Analysis Difficulty: ntermediate *OC 7: "#$". Learning Obecti!e: "#$, Section: "#%, &oic: -omemade di!idend
17-?7