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PROBLEM SET 13 ECO389 - SUMMER 2017 Corporate Finance Instructor: Ramiro Malaga Ortega Due date: Monday 14th August 2017 at 11:00 p.m. You will have only two attempts, only the last will be valid. Problem 1 Dividend policy changes are decided by: I) the managers of a firm; II) the government; III) the board of directors A. B. C. D. E. I only II only III only II only I and II only Problem 2 Which of these dates, when arranged in chronological order, occurs first? A. B. C. D. E. dividend payment date ex-dividend date record date dividend declaration date None of the above options Problem 3 On March 2, Michigan Mining declared a $2-per-share quarterly dividend payable on May 5 to stockholders of record on Friday, April 13. What is the latest date by which you could purchase the stock and still get the recently declared dividend? A. B. C. D. E. April April April April April 9 10 11 12 13 Problem 4 Suppose that there are no taxes, transactions costs, or other market imperfections. Which of the following actions is most likely to make shareholders better off? A. B. C. D. E. Increase dividends. Reduce dividends. Reduce share repurchases. Announce that dividends will not change for at least three years. Eliminate negative-NPV projects. Problem 5 Generally, firms engage in stock repurchases during: I) boom times as firms accumulate excess cash; II) recessions due to low stock prices; III) times when competitor's stock prices are dropping A. B. C. D. E. III only II only I only II and III only I and II only 1 Problem 6 Generally, investors dividends as: A. B. C. D. E. interpret the announcement of an increase in Good news and the stock price increases. A nonevent and does not affect the stock prices. Bad news and the stock price drops. Very good news and the stock price jumps up. Good news and the stock price decreases. Problem 7 A key assumption of the Miller and Modigliani (MM) dividend irrelevance argument is that: A. B. C. D. E. Future stock prices are certain. Firms have an adequate supply of Treasury shares. There exists a risk-free asset. There is no perfect information. New shares are sold at a fair price. Problem 8 The dividend-irrelevance proposition of Miller and Modigliani depends on the following relationship between investment policy and dividend policy: A. B. C. D. E. Changes in investment policy will alter dividend policy. Changes in dividend policy will alter investment policy. Investment policy is independent of dividend policy. Dividends are tax-deductible and investments are depreciable. None of the above options. Problem 9 The rightist position is that the market will reward firms for having: A. B. C. D. E. A high dividend yield. A low dividend yield Good management, regardless of dividend yield. A zero payout policy. A variable dividend yield. Problem 10 Even if both dividends and capital gains are taxed at the same ordinary income tax rate, the effect of each type of tax is different because: A. Capital gains are actually taxed, while dividends are taxed on paper only. B. Dividends are taxed when distributed, while capital gains are deferred until the stock is sold. C. Both dividends and capital gains are taxed every year. D. Both A and C. E. Both A and B. 2