Dividends And Dividend Policy Test Bank Answers Chapter 14

Chapter 14

Dividends and Dividend Policy

Test Bank - Static Key

1. Which one of the following is a payment of either cash or shares of stock that is paid out of earnings to a firm's shareholders?

A. Interest

B. Capital surplus

C. Retained earnings

D. Dividend

E. Stock repurchase

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

2. Which one of the following is a payment by a firm to its shareholders from any source other than current or accumulated retained earnings?

A. Interest

B. Distribution

C. Retained earnings

D. Dividend

E. Stock repurchase

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

3. Which one of the following best defines a regular cash dividend?

A. Distribution by a firm to its shareholders

B. Payment from any source by a firm to its owners

C. One-time payment of cash by a firm to its shareholders

D. Cash payment by a firm to its owners as part of a firm's normal operations

E. Distribution of the proceeds from the sale of a portion of a firm's operations

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

4. Which one of the following is the date on which the board of directors agrees to pay a dividend and passes a resolution to do so?

A. Date of record

B. Ex-dividend date

C. Payment date

D. Declaration date

E. Public announcement date

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Chronology of dividend payments

5. The ex-dividend date is defined as _____ day(s) before the date of record.

A. three business

B. three

C. two business

D. two

E. one

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Chronology of dividend payments

6. On which one of the following dates is the determination made as to which shareholders will receive a dividend payment?

A. Date of record

B. Ex-dividend date

C. Payment date

D. Declaration date

E. Public announcement date

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Chronology of dividend payments

7. On which one of the following dates are dividend checks mailed?

A. Date of record

B. Ex-dividend date

C. Payment date

D. Declaration date

E. Public announcement date

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Chronology of dividend payments

8. The clientele effect states that investors fall into various groups because of differences in their preferences for which one of the following?

A. Share price levels

B. Risk level

C. Short-term versus long-term investments

D. Rates of return

E. Dividends

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.2 Does Dividend Policy Matter?

Topic: Clientele effect

9. This morning, Structural Steel purchased 3,500 of its outstanding shares in the open market. What type of transaction was this?

A. Stock payout

B. Stock distribution

C. Stock dividend

D. Stock repurchase

E. Stock reversal

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

10. Which of these is a noncash payment made by a firm to its shareholders that lessens the value of each outstanding share?

A. Reverse stock split

B. Cash distribution

C. Stock dividend

D. Regular dividend

E. Liquidating dividend

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock dividends

11. Which one of the following reduces the number of shares outstanding but does not decrease the value of owners' equity?

A. Stock repurchase

B. Stock split

C. Reverse stock split

D. Cash distribution

E. Liquidating dividend

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock splits

12. During the past year, ABC stock has sold for as little as $19 a share and a much as $33 a share. Which one of the following terms applies to these prices?

A. Benchmark values

B. Price splits

C. Price dividers

D. Split range

E. Trading range

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Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock trading

13. Which one of the following increases the number of shares outstanding but does not change a firm's equity account values?

A. Reverse stock split

B. Cash distribution

C. Stock split

D. Liquidation dividend

E. Special dividend

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Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock splits

14. Miller’s Hardware recently paid $1.21 per share in dividends. The company currently has excess cash and would like to distribute an additional $.35 a share to its shareholders. However, the company is concerned about increasing the dividend by that amount as it will not be able to afford a similar increase in the future and doesn't want to lower the dividend once it has been raised. Which one of the following is probably the best suggestion for distributing the $.35 per share?

A. Pay a special dividend of $.35 per share

B. Pay an extra cash dividend of $.35 per share

C. Pay a liquidating dividend of $.35 per share

D. Increase the regular dividend by $.12 and pay a special dividend of $.23

E. Increase the regular dividend by $.12 and pay an extra cash dividend of $23

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

15. KL Electronics has paid a quarterly dividend of $.42 per share for the past two years. This quarter, the firm plans to pay $.42 plus an additional $.05 per share. The firm has stated that it is uncertain whether it will pay $.42 or $.47 per share next quarter. Which one of the following is the best description of the additional $.05 that is being paid this quarter?

A. Liquidating dividend

B. Special dividend

C. Extra dividend

D. Stock dividend

E. Normal dividend

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

16. Which one of the following is an example of a liquidating dividend?

A. Valley Feed Mills recently sold its grain storage facility and is distributing the proceeds of that sale to its shareholders.

B. Kate's Winery has excess cash that it wishes to distribute to its shareholders in addition to its normal cash dividend. This extra distribution usually occurs about once every year.

C. Kurt's Music is planning to increase its quarterly dividend by 3 percent.

D. The Dried Florist is preparing to pay its first annual dividend of $.08 per share.

E. Hi Tek had an extraordinarily profitable year and has decided to do a one-time only $10 per share cash dividend.

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

17. Which one of the following events must occur before a firm can offer a liquidating dividend?

A. Bankruptcy filing

B. Insolvency declaration

C. Asset sale

D. Negative equity

E. Failed bond issue

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

18. Kelsey International declared a dividend on Friday, November 13, that is payable on Friday, December 11, to holders of record on Monday, November 30. What is the latest date that you can purchase this stock if you wish to receive this dividend? Assume there are no banking holidays within this period of time.

A. Tuesday, November 24

B. Wednesday, November 25

C. Thursday, November 26

D. Friday, November 27

E. Monday, November 30

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Chronology of dividend payments

19. Which one of the following dates is the date on which the board of directors votes to pay a dividend?

A. Record date

B. Declaration date

C. Ex-dividend date

D. Payment date

E. Settlement date

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Chronology of dividend payments

20. Tuesday, December 1, is the ex-dividend date for Alpha stock. Which one of the following dates is the record date? Assume there are no banking holidays to consider.

A. Friday, November 27

B. Monday, November 30

C. Wednesday, December 2

D. Thursday, December 3

E. Friday, December 4

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Chronology of dividend payments

21. Davis Engineering declared a dividend to shareholders of record on Monday, February 8, that is payable on Friday, February 26. Carla knows that her dividend check normally arrives three business days after the check is written. On which one of the following days should she expect to receive her dividend check? Assume a 365-day year.

A. Wednesday, February 10

B. Thursday, February 11

C. Monday, March 1

D. Tuesday, March 2

E. Wednesday, March 3

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Chronology of dividend payments

22. Davidson Interiors declared a dividend to holders of record on Thursday, October 15, that is payable on Monday, November 2. Suenette purchased 200 shares of Davidson Interiors stock on Monday, October 12, and Jake purchased 100 shares of this stock on the following day. Which one of the following statements is correct given this information?

A. Both Suenette and Jake will receive this dividend.

B. Suenette will receive the dividend but Jake will not.

C. Jake will receive the dividend but Suenette will not.

D. Neither Suenette nor Jake will receive this dividend.

E. You cannot determine who will or will not receive this dividend based on the information provided.

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Chronology of dividend payments

23. Two weeks ago, Jensen’s declared a dividend of $1.34 a share. The ex-dividend date is tomorrow. All else constant, which one of the following is the best estimate of Jensen’s opening stock price tomorrow?

A. $1.34 lower than today's closing price

B. Today's closing price minus an amount approximately equal to the aftertax value of the dividend

C. The same as today's closing price since the dividend is expected

D. $1.34 higher than today's closing price

E. Today's closing price plus an amount approximately equal to the aftertax value of the dividend

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Cash dividends

24. Which one of the following statements is correct?

A. Dividends are irrelevant.

B. Flotation costs are a good reason to support a high-dividend payout.

C. Current tax laws favor high current dividends for individual investors.

D. Dividend policy is the time pattern of dividend payout.

E. Corporate investors tend to prefer low-dividend payouts on securities they own.

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.2 Does Dividend Policy Matter?

Topic: Dividend policy

25. The argument that dividend policy is irrelevant tends to be supported by which one of these factors?

A. Flotation costs associated with equity issues

B. Current tax laws

C. An unsatisfied demand for high-dividend-paying stocks

D. Current equilibrium in the clientele dividend market

E. The current tax exclusion available to corporate investors

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.2 Does Dividend Policy Matter?

Topic: Dividend policy irrelevance

26. Which one of the following statements is correct concerning the taxation of dividends and capital gains?

A. Seventy percent of capital gains derived from stock investments are tax exempt for corporate investors.

B. Dividends are a form of tax-exempt income for individual investors.

C. All investors are subject to the same tax rate on dividend income.

D. Individual investors can defer taxation on both dividends and capital gains.

E. As of 2015, individual investors pay a tax rate that varies from 0 to 15 percent on dividend income.

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.2 Does Dividend Policy Matter?

Topic: Tax effects on dividends and payouts

27. Which one of the following would tend to favor a low-dividend payout?

A. Higher tax rates on capital gains than on dividend income

B. High flotation cost for equity issues

C. Endowment fund investors who cannot spend principal

D. Investors' desire for a high-dividend yield

E. Elimination of the tax deferral on capital gains

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.2 Does Dividend Policy Matter?

Topic: Tax effects on dividends and payouts

28. Which one of the following is least apt to limit the amount of cash dividends a firm can pay?

A. Lack of retained earnings

B. A bankruptcy proceeding

C. A bond indenture covenant

D. State laws

E. Increasing stock price

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.2 Does Dividend Policy Matter?

Topic: Payout policy considerations

29. Which one of these favors a high-dividend payout?

A. Low transaction costs on stock trades

B. Lower taxes on capital gains than on dividends

C. Tax deferment on capital gains, but not on dividend income

D. Flotation costs

E. Corporate shareholders

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.2 Does Dividend Policy Matter?

Topic: Payout policy considerations

30. What percentage of capital gains are excluded from taxation for corporate shareholders?

A. 0 percent

B. 10 percent

C. 25 percent

D. 70 percent

E. 75 percent

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.2 Does Dividend Policy Matter?

Topic: Tax effects on dividends and payouts

31. All of the following investors generally receive a tax break on dividend income with the exception of:

A. corporate shareholders.

B. pension funds.

C. trust funds.

D. endowment funds.

E. individuals.

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.2 Does Dividend Policy Matter?

Topic: Tax effects on dividends and payouts

32. Assume that satisfied clienteles exist. Given this assumption, which one of these statements is correct?

A. A firm can increase its share price by increasing its dividend payout.

B. Dividend policy is irrelevant as long as each clientele group remains satisfied.

C. All firms will adopt a high-dividend-payout policy.

D. All dividends become irrelevant.

E. All firms should adopt a low-dividend-payout policy.

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.2 Does Dividend Policy Matter?

Topic: Clientele effect

33. M&N stock is currently selling for $22 per share. The firm just made an offer to one of its major shareholders to repurchase all the shares owned by that shareholder for $26 per share. What type of offer is being made?

A. Rights offer

B. Secondary issue

C. Targeted repurchase

D. Tender offer

E. Private issue

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

34. JTL has 148,000 shares of stock outstanding. The firm has extra cash so it announced this morning that it is willing to repurchase 18,000 of its shares. What type of offer is the firm making?

A. Rights offer

B. Secondary issue

C. Targeted repurchase

D. Tender offer

E. Private issue

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

35. All of the following are means of reducing the number of outstanding shares with the exception of a(n):

A. open market purchase.

B. reverse stock split.

C. tender offer.

D. rights offer.

E. targeted repurchase.

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

36. Kelso's is considering spending $80,000 on either a stock repurchase or an extra cash dividend. Which one of the following values will be the same whether the firm pays a dividend or repurchases stock? Assume there are no taxes or market imperfections.

A. Number of shares outstanding

B. Price per share

C. Earnings per share

D. Price-earnings (PE) ratio

E. Market value of equity per share

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Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

37. A stock repurchase will:

A. increase the number of shares outstanding.

B. decrease the earnings per share.

C. decrease the market price per share.

D. increase the market value per share.

E. decrease the PE ratio.

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Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

38. Assume an all-equity firm has positive net income. If this firm pays a cash dividend the:

A. number of shares outstanding will increase.

B. earnings per share will decrease.

C. firm’s total assets will remain constant.

D. price-earnings ratio will decrease.

E. firm’s total equity will increase.

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Cash dividends

39. Assume there are no taxes or imperfections. Given this assumption, which one of the following statements is correct?

A. A cash dividend has no effect on the market price of the payer's stock.

B. A cash dividend decreases shareholder wealth.

C. Stock repurchases decrease the market value per share.

D. Both a cash dividend and a share repurchase increase a firm's PE ratio.

E. A stock repurchase has the same effect on a firm's market value balance sheet as does a cash dividend.

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Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

40. A share repurchase will:

A. increase both earnings per share and the PE ratio.

B. increase the earnings per share but not affect the PE ratio.

C. increase the earnings per share and decrease the PE ratio.

D. not affect either the earnings per share nor the PE ratio.

E. not affect the earnings per share but will decrease the PE ratio.

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Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

41. Which statement is correct?

A. Cash dividends and stock repurchases are treated equally for tax purposes.

B. In total dollars, cash dividends outweighed stock repurchases for the period 2003-2013.

C. Many firms either ceased paying or decreased their dividends per share in response to the 2003 change in dividend taxation.

D. Firms tend to prefer cash dividends over share repurchases for their flexibility and tax benefits.

E. A non-dividend-paying firm is more apt to do a stock repurchase than to commence paying dividends.

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Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

42. Which statement is correct?

A. Tax rates are the key determinant to a company’s dividend policy.

B. Firms are equally likely to increase or decrease their normal dividends per share.

C. Dividends tend to be more erratic than earnings.

D. Mature firms are less apt to pay dividends than young firms.

E. Dividend growth tends to lag earnings growth.

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.4 What We Know and Do Not Know About Dividend and Payout Policies

Topic: Payout policy observations

43. Which statement is correct regarding US companies?

A. The personal taxes of investors is the key factor managers consider when establishing a dividend policy.

B. Firms tend to increase their regular dividend as soon as they expect increased earnings in the future.

C. Firms tend to react quickly to lower dividends any time the economy begins to slow.

D. Firms tend to quickly adjust their dividends to changes in the firm's P/E ratio.

E. Procter & Gamble is one example of a firm with a long history of increasing dividends.

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.4 What We Know and Do Not Know About Dividend and Payout Policies

Topic: Dividend policy

44. Research conducted on firms' dividend policies over time support which one of the following conclusions?

A. Aggregate dividends and stock repurchases have steadily declined in real terms.

B. Dividends are required to be paid by all public corporations in existence for ten years or more.

C. Managers tend to smooth dividends.

D. Stock prices react quickly whenever an anticipated dividend amount is paid.

E. Firms generally commence paying dividends prior to doing any stock repurchases.

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.4 What We Know and Do Not Know About Dividend and Payout Policies

Topic: Dividends and payout policy

45. Normal cash dividends that are increased regularly tend to send which message?

A. The firm is attempting to reduce its tax bill.

B. The dividends are expected to increase the firm’s agency costs.

C. The firm is planning on downsizing.

D. The firm is discontinuing all stock repurchases.

E. The firm expects to be profitable.

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.4 What We Know and Do Not Know About Dividend and Payout Policies

Topic: Dividend policy

46. Which statement is correct?

A. Stock dividends tend to reduce agency costs related to shareholders but stock repurchases do not.

B. It is relatively easy to determine whether or not a firm has completed a planned stock repurchase.

C. Fixed stock repurchases allow managers to repurchase shares only when they feel those shares are undervalued.

D. Stock dividends may come at the expense of forgoing positive net present value projects.

E. Stock repurchases send the exact same signals to investors as cash dividends send.

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Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.4 What We Know and Do Not Know About Dividend and Payout Policies

Topic: Stock dividends

47. Which one of the following is a drawback of cash dividends?

A. Firms may have to obtain additional external financing which would not be required in the absence of the dividends.

B. Stock prices tend to increase as annual dividend amounts increase.

C. Cash dividends support stock prices.

D. Dividends tend to lower agency costs.

E. Dividend-paying firms tend to attract a wider field of investors than do non-dividend-paying firms.

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.4 What We Know and Do Not Know About Dividend and Payout Policies

Topic: Cash dividends

48. Most company managers overwhelming feel that:

A. dividends should be increased annually no matter what.

B. dividends should be flexible and adjusted annually in response to changes in the firm's earnings.

C. the personal taxes of their shareholders must be their primary consideration when setting dividend policy.

D. once a dividend is increased, it should not be decreased.

E. dividend smoothing is talked about but rarely affects dividend decisions.

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Learning Objective: 14-02 Explain the issues surrounding dividend policy decisions.

Section: 14.4 What We Know and Do Not Know About Dividend and Payout Policies

Topic: Dividend policy

49. Lexington Stables just declared a 15 percent stock dividend. Which one of the following increased by 15 percent as a result of this dividend?

A. Book value of firm's equity

B. Shareholders' wealth

C. Number of shares outstanding

D. Firm's cash balance

E. Stock price

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock dividends

50. Which one of the following is basically equivalent to a 2-for-1 stock split?

A. 20 percent stock dividend

B. 25 percent stock dividend

C. 50 percent stock dividend

D. 100 percent stock dividend

E. 200 percent stock dividend

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock dividends

51. Modern Homes just declared a 4-for-3 stock split. Which of the following occurred as a result of this split?



I. Number of shares outstanding increased by one-third

II. Number of shares outstanding decreased by one-fourth

III. Price per share increased by one-third

IV. Price per share decreased by one-fourth

A. I only

B. I and III only

C. I and IV only

D. II and III only

E. II and IV only

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock splits

52. Of the following, which two are the best reasons for doing a reverse stock split?



I. Return a stock to its normal trading range

II. Eliminate small shareholders

III. Reduce shareholder costs

IV. Avoid delisting

A. I and II

B. I and III

C. II and III

D. II and IV

E. III and IV

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock splits

53. In the US, stock dividends:

A. tend to change in direct proportion to changes in earnings.

B. have steadily declined in nominal terms over the years.

C. tend to decrease in amount just as frequently as they increase.

D. are concentrated in a few mature firms.

E. have steadily declined in real terms over the years.

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.4 What We Know and Do Not Know About Dividend and Payout Policies

Topic: Stock dividends

54. The common stock of Woods Bowling Balls closed at $59.65 a share today. Tomorrow morning, the stock goes ex-dividend. The dividend that is being paid this quarter is $1.37 per share. Assume the tax rate on dividends is 21 percent. All else equal, what should the opening stock price be tomorrow morning?

A. $59.64

B. $58.43

C. $58.38

D. $58.57

E. $58.72

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Cash dividends

55. Cosmetics Emporium is preparing to pay its quarterly dividend of $1.76 a share. The stock closed at $79.65 a share today and goes ex-dividend tomorrow. What will the ex-dividend stock price be if the relevant tax rate is 21 percent and all else is held constant?

A. $78.99

B. $78.91

C. $78.26

D. $78.04

E. $77.99

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Cash dividends

56. The common stock of Beasley International goes ex-dividend tomorrow. The stock closed at a price of $28.06 a share today. This quarter, the company is paying a cash dividend of $.17 a share and a liquidating dividend of $.23 a share. Assuming the tax rate on dividends is 20 percent, what will be the ex-dividend price tomorrow morning?

A. $27.74

B. $27.68

C. $27.94

D. $33.96

E. $27.66

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

57. Overboard Excursions just announced it will be paying an annual dividend of $1.37 a share plus an extra dividend of $.56 a share this year. The company also announced that its regular dividend, which is all it anticipates paying after this year, will increase by 1.5 percent annually. What is the anticipated dividend per share next year?

A. $1.3855

B. $1.3924

C. $1.3906

D. $1.8088

E. $1.3745

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

58. Dragon Trucking just paid its annual regular cash dividend of $1.08 a share, along with a special dividend of $.12 a share. The company follows a policy of increasing its dividend by 1 percent annually. Which one of the following is the best estimate of the firm's next annual dividend payment?

A. $1.1925

B. $1.0908

C. $1.2120

D. $1.0912

E. $1.1032

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

59. Dunder Imports has common stock outstanding at a market price of $57 per share. The total market value of the firm is $5,130,000. The firm plans on liquidating one of its divisions for $500,000 in cash, after taxes, and distributing the proceeds to the shareholders in the form of a liquidating dividend. What will be the amount per share of that dividend?

A. $5.794

B. $5.556

C. $5.220

D. $5.308

E. $5.382

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

60. Fried Foods recently liquidated its fast-food division. That unit represented 30 percent of the firm's overall market value. Prior to the liquidation, the firm's stock was selling for $46 a share, the annual dividend was steady at $1.20 per share, and there were 18,000 shares outstanding. The firm is preparing to distribute the entire liquidation proceeds to shareholders. How much should shareholders expect to receive per share from this liquidating dividend? Ignore taxes.

A. $14.24

B. $13.30

C. $14.10

D. $13.10

E. $13.80

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

61. Metal Fabricators recently sold its poorest performing division and realized net proceeds from the transaction of $1.63 million. The firm has 320,000 shares of stock outstanding and a market price of $49 a share. The firm is now preparing to distribute the entire sale proceeds in the form of a liquidating dividend. What is the best estimate of the ex-dividend stock price? Ignore taxes and market imperfections.

A. $43.91

B. $41.38

C. $44.40

D. $43.79

E. $44.14

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

62. Dixie’s has a market value balance sheet as shown below. The firm currently has 2,200 shares of stock outstanding and net income of $10,500.







The firm has decided to spend $6,500 on new equipment and use the remaining excess cash to pay an extra cash dividend. What will the firm's PE ratio be after this dividend is paid, all else held constant? Ignore taxes.

A. 14.20

B. 16.67

C. 13.08

D. 11.22

E. 14.57

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Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Price-earnings ratio

63. The Down Towner has a market value balance sheet as shown below. The firm currently has 12,000 shares of stock outstanding and net income of $17,500.







The firm has decided to repurchase 10 percent of its outstanding stock at the current market price and fund that purchase with new debt. After the repurchase there will be ____ shares outstanding at a price per share of ____.

A. 10,200; $11.50

B. 10,200; $12.65

C. 10,800; $12.65

D. 10,800; $11.50

E. 10,800; $14.05

AACSB: Analytical Thinking

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

64. Botanical Gardens Nursery has 7,500 shares of stock outstanding at a market price of $18 a share. The earnings per share are $1.23. The firm has total assets of $384,000 and total liabilities of $146,000. Today, the firm is paying a quarterly cash dividend of $.22 a share. What will be the earnings per share after the dividend is paid if the tax rate on dividends is 15 percent?

A. $1.01

B. $1.04

C. $1.23

D. $1.17

E. $1.20

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Difficulty: 1 Easy

Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Cash dividends

65. Bob’s Standard Station has 15,000 shares of stock outstanding at a market price of $15 a share. The current earnings per share are $1.26. The firm has total assets of $312,000 and total liabilities of $97,500. Next week, the firm will be repurchasing $37,500 worth of stock. Ignore taxes. What will be the earnings per share after the stock repurchase?

A. $1.598

B. $1.547

C. $1.335

D. $1.512

E. $1.563

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Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

66. Water Front Rentals has 20,000 shares of stock outstanding at a market price of $24 each and earnings per share of $1.84. The firm has decided to repurchase $75,000 worth of stock. What will the PE ratio be after the repurchase, all else held constant?

A. 11.55

B. 13.24

C. 9.50

D. 10.69

E. 11.01

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Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

67. Dress Boutique has 8,350 shares of stock outstanding at a price per share of $19. What will be the price per share if the firm pays a $.75 per share dividend and the applicable tax rate is 25 percent? Ignore market imperfections.

A. $18.44

B. $18.68

C. $18.25

D. $18.36

E. $18.49

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Cash dividends

68. Davidson International has 13,700 shares of stock outstanding at a price per share of $28. The firm has decided to repurchase 500 of those shares in the open market. What will the price per share be after the share repurchase is completed? Ignore taxes and market imperfections.

A. $29.14

B. $28.84

C. $28.89

D. $28.00

E. $29.06

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Difficulty: 1 Easy

Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

69. Cookies and Cream has 5,000 shares of stock outstanding at a market price of $8.29 per share. What will be the price per share after a stock dividend of 8 percent? Ignore taxes and market imperfections.

A. $7.24

B. $7.68

C. $7.45

D. $7.96

E. $8.03

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock dividends

70. Fresh Baked Goods has 36,800 shares of stock outstanding at a market price of $24.91per share. What will be the price per share after a stock dividend of 6 percent? Ignore taxes and market imperfections.

A. $24.90

B. $23.50

C. $25.00

D. $25.31

E. $25.40

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock dividends

71. Heidi owns 400 shares of Boyd Enterprises stock, which is valued at $13 a share. Boyd Enterprises just declared a stock dividend of 4 percent. How many shares will Heidi own and what will be the price per share after the dividend?

A. 385; $12.50

B. 385; $13.00

C. 416; $12.50

D. 416; $13.00

E. 416; $13.50

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock dividends

72. Pluto United has 14,200 shares of stock outstanding at a price per share of $23. How many shares will be outstanding if the firm does a 4-for-3 stock split?

A. 18,300 shares

B. 19,033 shares

C. 18,667 shares

D. 19,100 shares

E. 18,933 shares

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock splits

73. B&K Lumber has 50,600 shares of stock outstanding at a price per share of $68. How many shares will be outstanding if the firm does a 5-for-2stock split?

A. 20,240 shares

B. 22,300 shares

C. 55,667 shares

D. 126,500 shares

E. 121,120 shares

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock splits

74. The Meat Market has 16,000 shares of stock outstanding at a price per share of $7. What will be the price per share if the firm declares a 3-for-7 reverse stock split?

A. $11.80

B. $4.50

C. $3.00

D. $15.00

E. $16.33

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock splits

75. Oak Tree Farms has common stock outstanding at a price of $13 a share. The total market value of the equity is $435,000. How many shares of stock will be outstanding if the firm does a reverse stock split of 2-for-5?

A. 9,602 shares

B. 36,000 shares

C. 13,385 shares

D. 37,500 shares

E. 83,654 shares

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock splits

76. Jessica currently owns 500 shares of Alpha stock valued at $19 share. What will her investment in Alpha be worth if the company declares a 4-for-3 stock split?

A. $6,075

B. $9,500

C. $11,000

D. $7,125

E. $8,800

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock splits

77. Taylor's stock has plummeted in value and is currently priced at $5 a share. The firm prefers the price exceed $10 a share and thus has decided to do a reverse stock split. However, when it does this, the firm wants the stock price increased to at least twice its preferred minimum as it is concerned the price will fall further. Which one of the following stock split ratios is most appropriate for this situation?

A. 1-for-3

B. 1-for-4

C. 2-for-7

D. 4-for-1

E. 7-for-2

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock splits

78. Innovative Technologies has 46,000 shares of stock outstanding at a market price of $6 a share. Which one of the following stock splits should the firm declare if it wants to increase the stock price to exactly $16 a share? Ignore any taxes or market imperfections.

A. 5-for-2 stock split

B. 3-for-1 stock split

C. 1-for-3-reverse stock split

D. 2-for-5 reverse stock split

E. 3-for-8 reverse stock split

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock splits

79. Kaylor's Tool Shoppe has 8,600 shares of stock outstanding at a market price of $8 a share. Which one of the following stock splits should the firm declare if it wants to increase the stock price to exactly $36a share? Ignore any taxes or market imperfections.

A. 3-for-4 stock split

B. 2-for-11 stock split

C. 2-for-7 reverse stock split

D. 2-for-9 reverse stock split

E. 2-for-8 reverse stock split

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock splits

80. Your portfolio is 500 shares of Country Marine Parts that currently sells for $33 a share. The company has announced a cash dividend of $0.75 per share with an ex-dividend date of tomorrow. Assume there are no taxes. What should you expect your portfolio value to be tomorrow morning assuming all else is held constant?

A. $16,236

B. $16,500

C. $16,646

D. $16,764

E. $16,830

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Cash dividends

81. Tattler, Inc. has declared a dividend of $2.10 a share. Suppose capital gains are not taxed, but dividends are taxed at 15 percent and that the IRS regulations require that taxes be withheld at the time the dividend is paid. Tattler sells for $67 per share, and the stock is about to go ex-dividend. What do you think the ex-dividend price will be?

A. $62.40

B. $65.22

C. $65.08

D. $66.67

E. $68.04

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Cash dividends

82. The equity section of a firm’s market value balance sheet has common stock of $100,000 (par value $1); capital surplus of $125,450; and retained earnings of $427,500. The firm’s stock sells for $36 a share. If the firm repurchases $55,000 of stock, what will be the new market value of the firm’s total equity?

A. $582,521

B. $612,400

C. $632,950

D. $632,096

E. $597,950

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Accounting for dividends and other payouts

83. Red’s Electronics has a balance sheet with equity account values of: common stock ($1 par) of $70,500; capital surplus of $141,600; and retained earnings of $208,300. How many shares will be outstanding if the firm declares a 2-for-9 reverse stock split?

A. 5,833 shares

B. 15,667 shares

C. 18,000 shares

D. 305,750 shares

E. 317,250 shares

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Accounting for dividends and other payouts

84. AIW, Inc. currently has 275,000 shares of stock outstanding that sell for $87 per share. Assuming no market imperfections or tax effects exist, what will be the share price after AIW implements a 7-for-3 stock split?

A. $37.29

B. $39.55

C. $36.31

D. $29.89

E. $32.38

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock splits

85. A market value balance sheet shows cash of $91,000; fixed assets of $327,000, and equity of $418,000. There are 16,000 shares of stock outstanding. The company has declared a dividend of $.82 per share. The stock goes ex-dividend tomorrow. Ignore any tax effects. What will be the firm's market equity value after the dividend is paid?

A. $372,020

B. $404,880

C. $419,560

D. $418,000

E. $397,810

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Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Accounting for dividends and other payouts

86. The Press has total assets of $848,000 and total debt of $402,000 on a market value basis. There are 25,000 shares of stock outstanding. The company has announced it is going to repurchase $40,000 worth of stock in the open market. What will be the price per share after the repurchase?

A. $36.29

B. $17.84

C. $38.67

D. $39.42

E. $39.89

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Difficulty: 1 Easy

Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Share repurchases

87. Flemington Farms is evaluating an extra dividend versus a share repurchase. In either case, $10,000 would be spent. Current earnings are $2.10 per share, and the stock currently sells for $52 per share. There are 2,000 shares outstanding. Ignore taxes and other imperfections. The PE ratio will be ____ if the firm issues the dividend as compared to ____ if the firm does the share repurchase.

A. 22.38; 22.38

B. 24.87; 22.38

C. 20.23; 24.87

D. 22.38; 20.23

E. 20.23; 22.38

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Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

NEW

88. The common stock of Tina’s Tires closed at $68.25 a share today. Tomorrow morning, the stock goes ex-dividend. The dividend that is being paid this quarter is $1.56 per share. Assume the tax rate on dividends is 21 percent. All else equal, what should the opening stock price be tomorrow morning?

A. $68.09

B. $66.88

C. $66.83

D. $67.02

E. $67.17

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Difficulty: 1 Easy

Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Cash dividends

89. Breakers Engineering is preparing to pay its quarterly dividend of $1.36 a share. The stock closed at $51.25 a share today and goes ex-dividend tomorrow. What will the ex-dividend stock price be if the relevant tax rate is 21 percent and all else is held constant?

A. $50.91

B. $50.83

C. $50.18

D. $49.96

E. $49.91

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Difficulty: 1 Easy

Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Cash dividends

90. Sarandon Construction just announced it will be paying an annual dividend of $1.48 per share plus an extra dividend of $.56 a share this year. The company also announced that its regular dividend, which is all it anticipates paying after this year, will increase by 2.5 percent annually. What is the anticipated dividend per share next year?

A. $1.5119

B. $1.5188

C. $1.5170

D. $1.9352

E. $1.5009

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

91. Harmerlin Enterprises has common stock outstanding at a market price of $72 per share. The total market value of the firm is $9,000,000. The firm plans on liquidating one of its divisions for $900,000 in cash, after taxes, and distributing the proceeds to the shareholders in the form of a liquidating dividend. What will be the amount per share of that dividend?

A. $7.441

B. $7.200

C. $6.864

D. $6.952

E. $7.026

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Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Types of cash dividends

92. Jerry Springs Company has 20,000 shares of stock outstanding at a market price of $10 a share. The current earnings per share are $0.55. The firm has total assets of $200,000 and total liabilities of $86,500. Next week, the firm will be repurchasing $25,000 worth of stock. Ignore taxes. What will be the earnings per share after the stock repurchase?

A. $0.715

B. $0.664

C. $0.452

D. $0.629

E. $0.563

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Difficulty: 1 Easy

Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

93. Baby Fresh Diaper Service has 30,000 shares of stock outstanding at a market price of $37.50 each and earnings per share of $1.22. The firm has decided to repurchase $187,500 worth of stock. What will the PE ratio be after the repurchase, all else held constant?

A. 26.16

B. 27.85

C. 24.11

D. 25.30

E. 25.61

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Difficulty: 1 Easy

Learning Objective: 14-04 Explain why share repurchases are an alternative to dividends.

Section: 14.3 Stock Repurchases: an Alternative to Cash Dividends

Topic: Stock repurchases

94. Your portfolio is 700 shares of Conglomerated International that currently sells for $26.50 a share. The company has announced a cash dividend of $0.45 per share with an ex-dividend date of tomorrow. Assume there are no taxes. What should you expect your portfolio value to be tomorrow morning assuming all else is held constant?

A. $16,236

B. $16,500

C. $16,646

D. $16,764

E. $16,830

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Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 14-01 Discuss dividend types and how dividends are paid.

Section: 14.1 Cash Dividends and Dividend Payment

Topic: Cash dividends

95. The equity section of a firm’s market value balance sheet has common stock of $250,000 (par value $1); capital surplus of $145,650; and retained earnings of $624,250. The firm’s stock sells for $27 a share. If the firm repurchases $75,000 of stock, what will be the new market value of the firm’s total equity?

A. $949,471

B. $979,350

C. $999,900

D. $999,046

E. $945,900

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Accounting for dividends and other payouts

96. Mercury Industries currently has 300,000 shares of stock outstanding that sell for $75 per share. Assuming no market imperfections or tax effects exist, what will be the share price after Mercury implements a 5-for-3 stock split?

A. $45.00

B. $44.02

C. $47.26

D. $37.60

E. $40.09

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 14-03 Differentiate between cash and stock dividends.

Section: 14.5 Stock Dividends and Stock Splits

Topic: Stock splits