Q1. The residual dividend theory suggests that earnings should be retained for reinvestments first and then what is left can be distributed to shareholders.

True

False

Q2. A firm declared a dividend of $2 per share, which was an increase of 25% from the prior year, yet the stock declined by 3% the day of the announcement. Another firm declared a dividend of $2 per share, which was the same as the prior year, and its stock increased.

1. Information effect.
2. Residual dividend theory.
3. Clientele effect.
4. Expectations theory.

Q3. The higher the dividend payout ratio, the less a company must rely on external financing.

True

False

Q4. The higher the dividend payout ratio, the less a company must rely on external financing.

1. stock repurchase
2. stock split
3. stock dividend
4. both b and c

Q5. Which one of the following is probably the best argument in favor of a stock split?

1. to lower the current stock price to its normal trading range.
2. to provide additional shares to all its shareholders.
3. to avoid delisting.
4. to increase the value of the firm.