Question 1

A reverse split reduces the number of shares outstanding.

Accepted Answer

A) True 
 B)False

Question 2

The dividend irrelevance theory says that the firm's dividend policy has no effect on either its value or its cost of capital.

Accepted Answer

A) True 
 B)False

Question 3

We can be sure that, in and of itself, a share dividend will not affect which of the following financial aspects of the firm? (Assume the share has a par value.)

Accepted Answer

A)   Market value per share.
B)   Book value per share.
C)   Ordinary share account .
D)   Paid-in capital account.
E)   Total assets.F) C) and E)
G) A) and C)

Question 4

Which of the following would not have an influence on the optimal dividend policy?

Accepted Answer

A)   The possibility of accelerating or delaying investment projects.
B)   A strong shareholders' preference for current income versus capital gains.
C)   Bond indenture constraints.
D)   The costs associated with selling new ordinary shares.
E)   All of the above can have an effect on dividend policy.F) All of the above
G) A) and B) E

Question 5

The farther to the right the IOS is, other things held constant, the lower a firm's dividend payout ratio.

Accepted Answer

A) True 
 B)False

Question 6

All else equal, a "normal" share split

Accepted Answer

A)   generally results in a significant increase in the per share price of the share from what it was before the split.
B)   reduces the number of shares outstanding.
C)   increases the number of shares outstanding.
D)   does not need to be recognised in any way in the financial position of a corporation.
E)   increase the dividend per share.F) A) and C)
G) None of the above

Question 7

The study by Rafeal La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W.Vishney identify all the following factors as explanations for dividend policy difference around the world.

Accepted Answer

A)   measures that help protect the minority right of shareholders.
B)   growth opportunities.
C)   risk associated with expected future dividends.
D)   number of shares outstanding.
E)   all of the above influence dividend policy differences around the world.F) D) and E)
G) None of the above

Question 8

Why is the ex-dividend date important to someone who is considering purchasing a firm's shares?

Accepted Answer

A)   If the shares are purchased on this date or later the buyer will not receive the next dividend paid by the firm.
B)   This is the date the firm "opens its books" to determine the names of the persons who will receive the next dividend that will be paid.
C)   This is the date the board of directors announces the value of the next dividend payment, so the market price of the shares will increase at this point.
D)   This is the date the dividend is paid-that is, dividend checks are mailed to investors.
E)   The ex-dividend date really isn't very important to potential investors; this date is more important to accountants who construct financial statements because it is the date the dividend becomes a legal liability of the firm.F) B) and D)
G) All of the above

Question 9

If you are considering purchasing a share because you want to receive the next dividend that will be paid by the firm, which of the following dates would be most important to the timing of your purchase?

Accepted Answer

A)   declaration date
B)   ex-dividend date
C)   payment date
D)   the date the firm's fiscal year ends
E)   holder-of-record dateF) None of the above
G) B) and E)

Question 10

A share split is always associated with an increase in the value of the equity outstanding.

Accepted Answer

A) True 
 B)False

Question 11

The "new share" type of dividend reinvestment plan allows the shareholder to automatically reinvest dividends to buy existing in the open market.

Accepted Answer

A) True 
 B)False

Question 12

If the shape of the curve depicting a firm's WACC versus its debt ratio is more like a sharp "V", as opposed to a shallow "U", the easier it will be for the firm to maintain a steady dividend in the face of varying investment opportunities from year to year.

Accepted Answer

A) True 
 B)False

Question 13

Firms following a constant dividend ration payout policy will cause investors to have greater uncertainty concerning expected dividends each year when the earnings for the firm are stable over time.

Accepted Answer

A) True 
 B)False

Question 14

Those who believe investors choose a particular share due to the firm's dividend policy would contend that firm should consider the __________ effect when changing dividend policies.

Accepted Answer

A)   clientele
B)   tax
C)   free cash flow
D)   IRS
E)   relevanceF) A) and C)
G) None of the above

Question 15

If the information content, or signaling, hypothesis is correct, then changes in dividend policy can be important with respect to firm value and capital costs.

Accepted Answer

A) True 
 B)False

Question 16

Makeover Inc.believes that at its current share price of R16.00 the firm is undervalued in the market.Makeover plans to repurchase 2.4 million of its 20 million shares outstanding.The firm's managers expect that they can repurchase the entire 2.4 million shares at the expected equilibrium price after repurchase.The firm's current earnings are R44 million.If management's assumptions hold, what is the expected market price after repurchase?

Accepted Answer

A)   R16.00
B)   R17.26
C)   R18.18
D)   R20.00
E)   R24.40F) C) and E)
G) A) and D)

Question 17

The date on which a firm's board of directors issues a statement declaring a dividend is the __________.

Accepted Answer

A)   declaration date
B)   holder-of-record date
C)   ex-dividend date
D)   payment date
E)   conversion dateF) A) and E)
G) B) and D) A

Question 18

A 2-for-1 share split

Accepted Answer

A)   increases the number of shares held by the firm's shareholders.
B)   increases the per share price of the firm's shares.
C)   requires shareholders to invest more money in the firm's shares.
D)   requires the firm to adjust the value of its total assets in the financial position.
E)   generally decreases the total value of the firm that splits its shares.F) A) and B)
G) B) and C) A

Question 19

Which of the following statement completions is correct? If investors prefer dividends to capital gains, then

Accepted Answer

A)   The equilibrium return, rs, will not be affected by a change in dividend policy because tax effects will offset these preferences.
B)   rs will decrease as dividends are reduced.
C)   rs will increase as dividends are reduced.
D)   rs will decrease as the retention rate increases.
E)   Dividend policy as determined by the residual dividend model is the only dividend policy which will maximise the price per share of ordinary equity.F) B) and C)
G) B) and E)

Question 20

According to the free cash flow hypothesis, cash flows that cannot be reinvested in positive net present value projects should be kept as retained earnings.

Accepted Answer

A) True 
 B)False

Exam 13: Distribution of Retained Earnings: Dividends and Share Repurchases

A reverse split reduces the number of shares outstanding.

Correct Answer
verified

The dividend irrelevance theory says that the firm's dividend policy has no effect on either its value or its cost of capital.

Correct Answer
verified

We can be sure that, in and of itself, a share dividend will not affect which of the following financial aspects of the firm? (Assume the share has a par value.)

Correct Answer
verified

Which of the following would not have an influence on the optimal dividend policy?

Correct Answer
verified
E

The farther to the right the IOS is, other things held constant, the lower a firm's dividend payout ratio.

Correct Answer
verified

All else equal, a "normal" share split

Correct Answer
verified

The study by Rafeal La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W.Vishney identify all the following factors as explanations for dividend policy difference around the world.

Correct Answer
verified

Why is the ex-dividend date important to someone who is considering purchasing a firm's shares?

Correct Answer
verified

If you are considering purchasing a share because you want to receive the next dividend that will be paid by the firm, which of the following dates would be most important to the timing of your purchase?

Correct Answer
verified

A share split is always associated with an increase in the value of the equity outstanding.

Correct Answer
verified

The "new share" type of dividend reinvestment plan allows the shareholder to automatically reinvest dividends to buy existing in the open market.

Correct Answer
verified

If the shape of the curve depicting a firm's WACC versus its debt ratio is more like a sharp "V", as opposed to a shallow "U", the easier it will be for the firm to maintain a steady dividend in the face of varying investment opportunities from year to year.

Correct Answer
verified

Firms following a constant dividend ration payout policy will cause investors to have greater uncertainty concerning expected dividends each year when the earnings for the firm are stable over time.

Correct Answer
verified

Those who believe investors choose a particular share due to the firm's dividend policy would contend that firm should consider the __________ effect when changing dividend policies.

Correct Answer
verified

If the information content, or signaling, hypothesis is correct, then changes in dividend policy can be important with respect to firm value and capital costs.

Correct Answer
verified

Correct Answer
verified

The date on which a firm's board of directors issues a statement declaring a dividend is the __________.

Correct Answer
verified
A

A 2-for-1 share split

Correct Answer
verified
A

Which of the following statement completions is correct? If investors prefer dividends to capital gains, then

Correct Answer
verified

According to the free cash flow hypothesis, cash flows that cannot be reinvested in positive net present value projects should be kept as retained earnings.

Correct Answer
verified

Exam 13: Distribution of Retained Earnings: Dividends and Share Repurchases

A reverse split reduces the number of shares outstanding.

Correct AnswerverifiedShow Answer

The dividend irrelevance theory says that the firm's dividend policy has no effect on either its value or its cost of capital.

Correct AnswerverifiedShow Answer

We can be sure that, in and of itself, a share dividend will not affect which of the following financial aspects of the firm? (Assume the share has a par value.)

Correct AnswerverifiedShow Answer

Which of the following would not have an influence on the optimal dividend policy?

Correct AnswerverifiedE

The farther to the right the IOS is, other things held constant, the lower a firm's dividend payout ratio.

Correct AnswerverifiedShow Answer

All else equal, a "normal" share split

Correct AnswerverifiedShow Answer

The study by Rafeal La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W.Vishney identify all the following factors as explanations for dividend policy difference around the world.

Correct AnswerverifiedShow Answer

Why is the ex-dividend date important to someone who is considering purchasing a firm's shares?

Correct AnswerverifiedShow Answer

If you are considering purchasing a share because you want to receive the next dividend that will be paid by the firm, which of the following dates would be most important to the timing of your purchase?

Correct AnswerverifiedShow Answer

A share split is always associated with an increase in the value of the equity outstanding.

Correct AnswerverifiedShow Answer

The "new share" type of dividend reinvestment plan allows the shareholder to automatically reinvest dividends to buy existing in the open market.

Correct AnswerverifiedShow Answer

If the shape of the curve depicting a firm's WACC versus its debt ratio is more like a sharp "V", as opposed to a shallow "U", the easier it will be for the firm to maintain a steady dividend in the face of varying investment opportunities from year to year.

Correct AnswerverifiedShow Answer

Firms following a constant dividend ration payout policy will cause investors to have greater uncertainty concerning expected dividends each year when the earnings for the firm are stable over time.

Correct AnswerverifiedShow Answer

Those who believe investors choose a particular share due to the firm's dividend policy would contend that firm should consider the __________ effect when changing dividend policies.

Correct AnswerverifiedShow Answer

If the information content, or signaling, hypothesis is correct, then changes in dividend policy can be important with respect to firm value and capital costs.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The date on which a firm's board of directors issues a statement declaring a dividend is the __________.

Correct AnswerverifiedA

A 2-for-1 share split

Correct AnswerverifiedA

Which of the following statement completions is correct? If investors prefer dividends to capital gains, then

Correct AnswerverifiedShow Answer

According to the free cash flow hypothesis, cash flows that cannot be reinvested in positive net present value projects should be kept as retained earnings.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
E

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified