Practice quiz 15

A cash dividend payment reduces corporate cash and __________, except in the case of a liquidating dividend, wherein __________ may be reduced.

Select one:

a.capital; retained earnings

b.retained earnings; shares

c.retained earnings; capital

d.net income; capital

e.net income; retained earnings

Which of the following real-world factors favour a high dividend payout?

I.taxes

II.flotation costs

III.debt covenant

IV.desire for current income

V.uncertainty resolution

Select one:

a.I and II only

b.II and III only

c.I, II, and III only

d.III, IV, and V only

e.I, IV, and V only

WoeBeTide's chief objective is to meet its investment needs and maintain its target debt-equity ratio before paying dividends. WoeBeTide is following a __________ dividend approach.

Select one:

a.cyclical

b.stable

c.compromise

d.residual

e.stochastic

Share repurchases

Select one:

a.reduce earnings.

b.reduce EPS.

c.reduce the number of outstanding shares.

d.increase earnings.

e.have no effect on the firm.

You own 5,000 shares of a firm's common stock. The firm has a total of 500,000 shares outstanding, with each share being priced at $5 per share. The firm has just declared a six-for-four stock split. How many shares will you end up with, and what will be the price per share after the stock split?

Select one:

a.1,600 shares; $6.25

b.3,200 shares; $3.13

c.3,200 shares; $4.95

d.7,500 shares; $5

e.7,500 shares; $3.33

Aunt Jemima owns 1600 shares in Oohay Corporation common stock. Oohay has just declared a stock dividend. If Aunt Jemima ends up with 2000 shares afterwards, what percentage stock dividend was declared?

Select one:

a.15%

b.20%

c.25%

d.30%

e.35%

The argument that homemade dividends would lead to the irrelevance of dividend policy hinges critically on the assumption

Select one:

a.of no taxes and transaction or flotation costs.

b.that shareholders are willing to buy more shares.

c.that the capital asset pricing model can be used to value shares.

d.that the company will issue more shares.

e.of stable dividend payment.

In terms of changes in the number of shares outstanding, a 25% stock dividend is equivalent to a ____________ stock split.

Select one:

a.six for five

b.six for four

c.five for three

d.five for four

e.seven for six

PQR Inc. has a debt-equity ratio of 2 and one million shares outstanding. The firm's pro-forma Statement of Comprehensive Income for the next year indicates that its net income will be $650,000. If the company proposes to invest 60% of its earnings in projects, what is the dividend per share?

Select one:

a.$0.34

b.$0.43

c.$0.52

d.$0.90

e.$1.20

STU Mobility Inc. will pay $5 per share in cash dividends one year from now, and a liquidating dividend of $80 per share two years from now. The required return on similar common stocks is 15%. If you own 1,000 shares of the 100,000 total shares outstanding in STU, but you want to have constant dividend payout in the next two years, how much homemade dividends can you get in each year?

Select one:

a.$36,962.26

b.$37,028.37

c.$38,295.54

d.$39,883.72

e.$62,468.11