fu 12. The "optimal dividend policy" strikes a balance between paying cash dividends and retaining eamings for growth that maximizes the company's stock price. As such, the optimal dividend policy should A. Maintain investors'/clientele preference for dividends or capital gains. B. Allow for use of a portion of Retained Earmings for financing capital projects consistent with the optimal capital structure and capital budgeting decisions. C. Establish a minimal dividend payout amount per share that can be maintained, plus "extras". D, A, B, & C are all correct statements. 13. Before a company establishes and announces its Dividend Policy to the investment community, it should be certain that it can maintain the dividend payment because if it misses or reduces the established dividend payment, its stock price almost always declines. A. False B. True C. Dividend Policy has nothing to do with a company's stock price. D. A "bird-in-hand" is always better than "two-in-the-bush"I 14. A decrease in a company's willingness to pay dividends is likely to result from an increase in its A. carmings stability (since Retained Earnings is more stable, Payout Ratio can be decreased) B. profitable investment opportunities with positive Net Present Values (NPV's) (need more RE) C. use of capital equity/stock markets (more shares outstanding means paying greater dividends) D. Accounts Receivable Collection period (since it takes longer to actually get cash from sales to pay dividends) 15. Which of the following statements is correct? A. If a company announces as 2-for-1 Stock Split, its stock price should double. B. Stock Repurchases are less tax favorable to the investor than receiving cash dividends. C. On average, a company's stock price tends to increase when it announces a Stock Repurchase. D. An advantage of Dividend Reinvestment Plans (DRIP) is that investors avoid paying taxes on them. 16. In the real business world, it can generally be concluded that dividends A, usually exhibit greater stability than earnings B. fluctuate more widely than earnings C. tend to be a lower percentage of eamings for a mature company than a growing company D. usually change every year to reflect changes in carmings 17. Which of the following statements is not correct? A. Stock repurchases can be used by companies to defend against hostile takeovers since they increase the proportion of debt in the companies' capital structure. B. After a 3-for-l stock split, a company's price per share will decrease by a factor of 3 and its number of shares outstanding will increase by a factor of 3. C. Dividend Policy & Payout Ratio are of significance only to senior company management; stockholders are generally not interested and willfully comply with senior company management's decisions. D. Investors can interpret a stock repurchase by a company as a signal" that the company's management believes the stock is undervalued. 18. Which of the following theories" best describes investor's preferences for dividends? A. Miller/Modigliani - investors prefer dividends to capital gains since their taxes are lower on dividends B. Bird-In-The-Hand - companies should always pay-out all their annual earnings in the form of dividends C. Brigham & Houston - no dividends should be paid; all funds should be reinvested in the company D. Clientele Effect - companies should follow a stable dividend policy that can be "estimated" by investors
