Question 11

Generally, the corporate cash distribution policy defines: _____

A) The level of cash distributions to shareholders.

B) The form of the distribution (dividend vs. stock repurchase).

C) The stability of the cash distribution.

D) All of above.

Question 12

MM's dividend irrelevance theory says that dividend policy does not affect a firm's value because any shareholder can in theory constructs his or her own dividend policy. But the theory may not be true because it is based on unrealistic assumptions - no taxes and brokerage costs.

True

False

Question 13

Which of the following statements about dividend is NOT true?

A) Bird-in-the-hand theory says that investors think dividends are less risky than potential future capital gains, so they like dividends.

B) Tax preference theory indicates that low dividend payments mean higher capital gains.

C) Capital gains taxes are lower than dividend taxes, and they can be deferred. So investors prefer low-dividend-payments or non-dividend-payments firms.

D) Based on the Bird-in-the-hand theory, a firm should set high dividend payout ratio to increase firm value.

E) Based on the Tax preference theory, a firm should pay more dividends to increase firm value.

Question 14

If a firm adopts a residual distribution policy, distributions are determined as a residual item. Therefore, the better the firm's investment opportunities, the lower its distributions should be.

True

False

Question 15

What's the disadvantage of the stock repurchases relative to the dividend payments?

A) Stock repurchase can help avoiding setting a high dividend level that cannot be maintained.

B) Firms may have to bid up stock price to complete repurchase, thus paying too much for its own stock.

C) Stockholders may take stock repurchase as a positive signal - management thinks stock is undervalued.

D) Investors can receive income from lower-taxed capital gains rather than the higher-taxed dividends.

Question 16

If the information content, or signaling, hypothesis is correct, changes in dividend policy can be important because investors view dividend changes as signals of management's view of the future.

True

False

Question 17

You currently own 50 shares of stock in Beverly Brothers Inc. The stock currently trades at $60 a share. The company is contemplating a 3-for-1 stock split. Which of the following best describes your position after the proposed stock split takes place?

A) You will have 50 shares of stock with $60 a share.

B) You will have 50 shares of stock with $20 a share.

C) You will have 150 shares of stock with $60 a share.

D) You will have 150 shares of stock with $20 a share.

Question 18

Based on the residual dividend policy, if company has better operating performance with a higher net income, it has more cash which can be distributed to common shareholders given the same capital budget.

True

False

Question 19

Which of the following statements correctly describe the reasons why firms hold cash even though cash doesn't earn interests?

A) Firms hold transaction cash for routine payments and collections.

B) Firms reserve precautionary cash for random and unforeseen fluctuations in cash flows.

C) Firms hold cash to take advantage of bargains, discounts, etc.

D) All of the statements above are correct.

Question 20

The principal goal of inventory management systems is to balance the costs of ordering, shipping, and receiving goods with the cost of carrying those goods, while simultaneously meeting the firm's policy with respect to avoiding running short of stock and disrupting production schedules.

True

False