1

Which of the following is not one of the four steps of the Residual Dividend Model to establish a target payout ratio?

a.It determines the optimal capital budget

b.Given its target capital structure, it determines the amount of equity needed to finance that budget

c.It uses retained earnings to meet equity requirements to the extent possible

d.Pays dividends even if earnings are not enough to support the optimal capital budget

e.None of the above

0.2 points

QUESTION 2

The date on which the right to the current dividend no longer accompanies a stock is the

a.Declaration Date

b.Holder of Record Date

c.Ex-Dividend Date

d.Payment Date

e.None of the above

0.2 points

QUESTION 3

Which of the following is not true of Dividend Reinvestment Plans (DRIPS) ?

a.Plans that involve only old, already-outstanding stock. Minimal brokerage fees due to high volume transactions.

b.Plans that involve newly issued stock.Raises new capital for the firm. No brokerage fees due to the fact that the new shares are issued directly by the firm.

c.Some firms allow anyone, not only current shareholders, to buy shares directly from the company.

d.Shares are sometimes discounted below market value because there are minimal or no brokerage fees (floatation cost).

e.All of the above are true

0.2 points

QUESTION 4

Which of the following is not one of the four factors in determining the optimal payout ratio under the Residual Dividend Model?

a.Competitor's payout ratio

b.Management's opinion about its investors' preferences for dividends versus capital gains

c.The firm's investment opportunities

d.The firm's target capital structure

e.The availability and cost of external capital

0.2 points

QUESTION 5One alternative that companies use to distribute cash to shareholders instead of paying dividends is to repurchase shares

True

False

0.2 points

QUESTION 6

One advantage of Dividend Reinvestment Plans (DRIPS) is that reinvested dividends are not taxed

True

False

0.2 points

QUESTION 7

Where raising capital is concerned, firms that are concerned about the dilution of concentration of control are most likely to have a higher dividend payout ratio

True

False

0.2 points

QUESTION 8

Adecreasein dividend per share may signal to investors that the prospects for future earnings arepoor

True

False

0.2 points

QUESTION 9

One clientele that usually prefer dividends to capital gains are younger working people who are saving for retirement

True

False

0.2 points

QUESTION 10

The Clientele Effect is the theory that suggests investors' preferences for dividends vary over time and that corporations adapt their dividend policies to cater to the current desires of investors

True

False