Question 1

Which of the following U.S. entities have tax reasons to prefer companies that pay out cash by repurchases instead of dividends (assume capital gains tax = 15% and that dividends for individuals are taxed at the individual's marginal tax rate.):

	a.	A pension fund that has no restrictions on the use of dividend income or cash from share repurchases.
	b.	An individual investor in the top income bracket
	c.	A corporation.
	d.	None of the above.

Question 2

Which of the following U.S. entities have tax reasons to favor companies that pay out cash dividends instead of repurchasing shares (Assume capital gains tax = 15% and that the dividends for individuals are taxed at the individual's marginal tax rate.):

	a.	A pension fund that has no restrictions on the use of dividend income or cash from share repurchases.
	b.	An individual in the top income tax bracket.
	c.	A corporation.
	d.	None of the above.

Question 3

Which of the following U.S. entities do not care how a firm distributes cash:

	a.	A pension fund with no restrictions on its ability to use dividend income or cash from share repurchases.
	b.	An individual investor in the top income tax bracket.
	c.	A corporation.
	d.	None of the above.

Question 4

The imputation tax system:

	a.	Shareholder returns are not taxed twice.
	b.	All shareholders pay the same effective rate on their dividend income.
	c.	The government receives net tax revenues at the rate of the corporate tax or the personal tax, whichever is higher.
	d.	(a.) and (c.)

Question 5

The following are correct with respect to corporate payout policies:

	a.	Companies decide each year's dividend by looking at their capital expenditure requirements and then distributing whatever cash is left.
	b.	Managers and investors seem more concerned with changes in dividends than the level of dividends.
	c.	Managers may increase dividend payments temporarily when earnings are unexpectedly high for a year or two.
	d.	(b.) and (c.)

Question 6

The Middle-of-the-Road party argues that:

	a.	One must consider dividend policy only after holding the firm's assets, investments and borrowing policies fixed
	b.	Dividend policy is irrelevant.
	c.	Tax policies may may make share repurchases more attractive than dividends.
	d.	(a.) and (b.)

Question 7

The ex-dividend date for a stock:

	a.	Usually follows the record date by one or two days.
	b.	Usually has little or no impact on the stock price.
	c.	Is usually not known at the time the dividend is declared on the announcement date.
	d.	None of the above.

Question 8

The Rightists:

	a.	Assume perfect and complete capital markets to demonstrate that investors prefer higher dividend payouts to capital gains.
	b.	Believe in natural clienteles for investors.
	c.	Agree with the leftists that taxes tend to make dividend policy irrelevant.
	d.	(a.) and (b.)

Question 9

The Life Cycle of the Firm:

	a.	Is consistent with observed dividend payout.
	b.	Asserts that firms should never pay dividends as this makes firms financially weaker.
	c.	Argues that young start-up frims should pay dividends as a means of attracting investors.
	d.	None of the above.

Question 10

Apple's payout in 2010 confirms:

	a.	The Middle-of-the Road theory of payout policy.
	b.	The Rightists theory of payout policy.
	c.	The Leftists theory of payout policy.
	d.	None of the above.

Question 11

Generous dividend payouts and high P/E multiples are positively correlated. Does this imply that paying cash dividends instead of repurchases increases share price? Provide an explanation that would answer this question, "No".