1. Which of the following is not correct regarding cash dividends?

a. They typically signal that the company is financially healthy.

b. They reduce uncertainty.

c. They are beneficial for investors who have a preference for current income.

d. They impose no tax liability on the shareholders who receive them.

2. All of the following are correct regarding stock splits except:

a. The market price per share of stock is reduced after the split, generally proportional to the split.

b. The number of outstanding shares is increased to reflect the stock split.

c. The tax basis in each share of stock remains the same after a stock split.

d. Ownership remains proportionally unchanged.

3. An individual stockholder reinvests dividends under a companys dividend reinvestment plan (DRIP). The reinvestment dividends are:

a. Not ever taxable to the shareholder but do change the taxable basis of shares.

b. Taxable to the shareholder in the year of the reinvestment as capital gains.

c. Taxable to the shareholder in the year declared and reinvested.

d. Taxable income that is deferred until the sale of the stock.

4. Acme, Inc. has net earnings of $2.1 billion this year. It has 700 million shares of common stock outstanding, and it paid 25 cents per share per quarter this year as a dividend. Which of the following is correct?

a. The retention ratio cannot be determined based on this information.

b. The payout ratio equals 12.5%.

c. The payout ratio equals 33.33%.

d. The payout ratio equals 66.67%.

5. A dividend reinvestment plan (DRIP) is ____.

a. An optional investment plan, provided by brokerage firms, allowing shareholders to automatically reinvest dividend payments in additional shares of the firms stock.

b. An optional investment plan, provided by large corporate firms, allowing shareholders to automatically reinvest dividend payments in additional shares of the firms stock.

c. A mandatory investment plan, provided by brokerage firms, in which shareholders are automatically reinvesting dividend payments in additional shares of the firms stock at a reduced price.

d. A mandatory investment plan, provided by large corporate firms, in which shareholders automatically reinvest dividends into additional shares of the firms stock at a reduced price.