Verified Test Bank Dividends And Payout Policy Ch17

1.

Green Roof Motels has more cash on hand than its operations require. Thus, the firm has decided to pay out some of its earnings in the form of cash to its shareholders. What are these payments to shareholders called? 
 

2.

Lester's Frozen Foods just paid out $0.50 a share to its shareholders. The cash for these payments came from a large sale of assets, not from any earnings of the firm. What are these payments to shareholders called? 
 

3.

A $0.60 quarterly cash payment paid by T.L. Jones & Co. to its shareholders in the normal course of business is called a: 
 

4.

The board of directors of Wilson Sporting Equipment met this afternoon and passed a resolution to pay a cash dividend of $0.42 a share next month. In relation to this dividend, today is referred to as which one of the following dates? 
 

5.

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

6.

Which one of the following dates is used to determine the names of shareholders who will receive a dividend payment? 
 

7.

Dividend payments are mailed on which one of the following dates? 
 

8.

Which one of the following refers to the ability of shareholders to undo a firm's dividend policy and create an alternative dividend policy by reinvesting dividends or selling shares of stock? 
 

9.

What is the information content effect? 
 

10.

The common stock of Pierson Enterprises has historically had a high dividend yield and is expected to continue to do so. As a result, the majority of its shareholders are individuals and entities that are seeking a regular source of cash income. Most of these shareholders pay either no taxes or a relatively low amount of taxes. The fact that most of these shareholders have similar characteristics is referred to by which one of the following terms? 
 

11.

HJ Corporation has excess cash and has opted to buy some of its shares of outstanding common stock. What is this process of buying called? 
 

12.

Which one of the following involves a payment in shares by a stock issuer that increases the number of shares a shareholder owns but also decreases the value per share? 
 

13.

Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding? 
 

14.

Bell Weather Markets has recently sold for as little as $8 a share and as much as $15 a share. The difference between these two prices is referred to as the: 
 

15.

A reverse stock split is defined as: 
 

16.

Which one of the following statements related to cash dividends is correct? 
 

17.

Billingsley United declared a $0.20 a share dividend on Thursday, October 16. The dividend will be paid on Monday, November 10 to shareholders of record on Friday, October 31. Which one of the following is the ex-dividend date? 
 

18.

Taylor's Tools declared a $0.48 per share dividend on Friday, March 7. The dividend will be paid on Monday, April 7. The ex-dividend date is Tuesday, March 18. What is the record date? 
 

19.

The last date on which you can purchase shares of stock and still receive the dividend is the date which is _____ business days prior to the date of record. 
 

20.

Kate purchased 500 shares of Fast Deliveries stock on Wednesday, July 7^th. Ted purchased 100 shares of Fast Deliveries stock on Thursday, July 8^th. Fast Deliveries declared a dividend on June 20^th to shareholders of record on July 12^th and payable on August 1^st. Which one of the following statements concerning the dividend paid on August 1^st is correct given this information? 
 

21.

All else equal, the market value of a stock will tend to decrease by roughly the aftertax value of the dividend on the: 
 

22.

Which one of the following statements related to dividend policy is correct? 
 

23.

Automatic dividend reinvestment plans:

I. require that stockholders reinvest all of the dividends to which they are entitled.
II. sometimes grant shareholders the privilege of purchasing additional shares at a discounted price.
III. help shareholders create their own homemade dividend policies.
IV. help make corporate dividend policies irrelevant to individual stockholders. 
 

24.

Which of the following tends to increase the ability of a shareholder to create his or her own homemade dividend policy?

I. low taxes on capital gains
II. dividend reinvestment plans
III. large holdings of shares
IV. low cost equity purchases 
 

25.

Which one of the following favors a low dividend policy? 
 

26.

The fact that flotation costs can be significant is an argument for: 
 

27.

Which of the following tend to keep dividends low?

I. shareholders desiring current income
II. terms contained in bond indenture agreements
III. the desire to maintain constant dividends over time
IV. flotation costs 
 

28.

Which of the following shareholders tend to favor a high dividend policy?

I. retired individuals
II. endowment funds
III. corporate investors
IV. investors with high dividend tax rates but low capital gains tax rates 
 

29.

An investor is more likely to prefer a high dividend payout if a firm: 
 

30.

The information content of a dividend increase generally signals that: 
 

31.

S.L. Moffatt, Inc. has paid a quarterly dividend of $1.20 per share for the last ten quarters. Which one of the following is most apt to cause the firm to reduce the amount of its next dividend payment? 
 

32.

The dividend market is in equilibrium when: 
 

33.

Which one of the following statements related to stock repurchases is correct? 
 

34.

Which one of the following statements related to stock repurchases is correct? 
 

35.

A stock repurchase program: 
 

36.

Which one of the following is a result of a stock repurchase? 
 

37.

If you ignore taxes and costs, a stock repurchase will:

I. reduce the total assets of a firm.
II. decrease the earnings per share.
III. reduce the PE ratio more so than an equivalent stock dividend.
IV. reduce the total equity of a firm. 
 

38.

Steve owns 3,000 shares of NOP, Inc. stock, which he purchased six years ago at a price of $22 a share. Today, these shares are selling for $68 each. Assume the current tax laws are such that Steve is subject to a tax rate of 25 percent on both his dividend income and his capital gains. From Steve's point of view, a stock repurchase today: (Ignore costs) 
 

39.

Which one of the following statements correctly applies to U.S. industrial firms based on the period of 1984-2004? 
 

40.

Which one of the following statements appears to be supported by the current dividend policies of U.S. industrial firms? 
 

41.

Which one of the following statements is correct? 
 

42.

Which of the following balance sheet accounts are affected by a small stock dividend?

I. cash
II. common stock
III. retained earnings
IV. capital in excess of par value 
 

43.

A small stock dividend is defined as a stock dividend of less than _____ percent. 
 

44.

Which one of the following is a result of a small stock dividend? 
 

45.

Which of the following account balance changes occur as a result of a large stock dividend?

I. increase in common stock
II. decrease in capital in excess of par
III. increase in capital in excess of par
IV. decrease in retained earnings 
 

46.

Revol-Tech is a technology firm with excellent growth prospects. The firm wishes to do something to acknowledge the loyalty of the shareholders but needs all of its available cash to fund the firm's rapid growth. The market price of the stock is currently trading at the upper end of its preferred trading range. The firm is most apt to consider which one of the following in this situation? 
 

47.

Which two of the following are the best justifications for a reverse stock split?

I. combine a reverse stock split with a stock repurchase to enable a firm to go dark
II. increase the respectability of the stock
III. avoid delisting
IV. reduce transaction costs for shareholders 
 

48.

A stock split: 
 

49.

Stock splits can be used to: 
 

50.

Which one of the following is a direct result of a 2-for-1 stock split? 
 

51.

Sligo Minerals stock is currently trading at $6 a share. The firm believes its primary clientele can afford to spend between $1,500 and $2,000 to purchase a round lot of 100 shares. The firm should consider a: 
 

52.

A one-for-four reverse stock split will: 
 

53.

A firm wants to maintain a minimum stock price of $15 a share. Due to a recent market downturn, the stock is currently selling for $6 a share. The firm should consider a: 
 

54.

Plyler Cabinets declared a dividend of $1.20 a share on May 15 to holders of record on Monday, June 1. The dividend is payable on June 15. Sara purchased 500 shares of Plyler Cabinets stock on Friday, May 29. How much dividend income will she receive on June 15 from Plyler Cabinets? 
 

55.

Steve purchased 300 shares of Alpha Beta stock on May 9. On May 15, he purchased another 300 shares and then on May 22 he purchased a final 400 shares of Alpha Beta stock. The company declared a dividend of $1.60 a share on April 30 to holders of record on Friday, May 23. The dividend is payable on June 2. How much dividend income will Steve receive on June 2 from Alpha Beta? 
 

56.

On July 7, you purchased 500 shares of Wagoneer, Inc. stock for $21 a share. On August 1, you sold 200 shares of this stock for $28 a share. You sold an additional 100 shares on August 17 at a price of $25 a share. The company declared a $0.95 per share dividend on August 4 to holders of record as of Wednesday, August 15. This dividend is payable on September 1. How much dividend income will you receive on September 1 as a result of your ownership of Wagoneer stock? 
 

57.

Webster United is paying a $1.10 per share dividend today. There are 350,000 shares outstanding with a market price of $25 per share. Ignore taxes. Before the dividend, the company had earnings per share of $1.74. As a result of this dividend, the: 
 

58.

You own 2,200 shares of Deltona Hardware. The company has stated that it plans on issuing a dividend of $0.42 a share at the end of this year and then issuing a final liquidating dividend of $2.90 a share at the end of next year. Your required rate of return on this security is 16 percent. Ignoring taxes, what is the value of one share of this stock to you today? 
 

59.

Al owns 800 shares of The Good Life Co. The company recently issued a statement that it will pay a dividend per share of $0.55 this year and a $0.60 per share dividend next year. Al does not want any dividend income this year but does want as much dividend income as possible next year. Al earns 9 percent on his investments. Ignoring taxes, what will Al's total homemade dividend be next year? 
 

60.

Jenningston Mills has a market value equal to its book value. Currently, the firm has excess cash of $1,200, other assets of $5,800, and equity valued at $3,750. The firm has 250 shares of stock outstanding and net income of $420. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase? 
 

61.

Blasco's has a market value equal to its book value. Currently, the firm has excess cash of $1,332, other assets of $11,674, and equity of $7,200. The firm has 1,200 shares of stock outstanding and net income of $838. Blasco's has decided to spend one-third of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed? 
 

62.

Tucker's National Distributing has a current market value of equity of $10,665. Currently, the firm has excess cash of $640, total assets of $22,400, net income of $3,210, and 500 shares of stock outstanding. Tucker's is going to use all of its excess cash to repurchase shares of stock. What will the stock price per share be after the stock repurchase is completed? 
 

63.

The equity of Blooming Roses has a total market value of $16,000. Currently, the firm has excess cash of $1,400 and net income of $15,400. There are 750 shares of stock outstanding. What will be the percentage change in the stock price per share if the firm pays out all of its excess cash as a cash dividend? 
 

64.

Delaware Trust has 450 shares of common stock outstanding at a market price per share of $27. Currently, the firm has excess cash of $400, total assets of $28,900, and net income of $1,320. The firm has decided to pay out all of its excess cash as a cash dividend. What will the earnings per share be after this dividend is paid? 
 

65.

Josh's, Inc. has 7,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $32 a share. The balance sheet shows $82,000 in the capital in excess of par account, $7,000 in the common stock account, and $64,800 in the retained earnings account. The firm just announced a 10 percent stock dividend. What is the value of the capital in excess of par account after the dividend? 
 

66.

Randall's, Inc. has 20,000 shares of stock outstanding with a par value of $1.00 per share. The market value is $12 per share. The balance sheet shows $42,000 in the capital in excess of par account, $20,000 in the common stock account, and $50,500 in the retained earnings account. The firm just announced a 5 percent (small) stock dividend. What will the balance in the retained earnings account be after the dividend? 
 

67.

Southern Fried Chicken has 8,000 shares of stock outstanding with a par value of $1 per share and a market value of $34 per share. The balance sheet shows $45,000 in the capital in excess of par account, $8,000 in the common stock account, and $152,000 in the retained earnings account. The firm just announced a 5 percent stock dividend. What will total owners' equity be after the dividend? 
 

68.

Val's Marina Supply has 3,500 shares of stock outstanding with a par value of $1.00 per share and a market value of $19 per share. The balance sheet shows $3,500 in the common stock account, $24,000 in the capital in excess of par account, and $31,400 in the retained earnings account. The firm just announced a 100 percent stock dividend. What is the value of the capital in excess of par account after the dividend? 
 

69.

Kurt's Market has 8,000 shares of stock outstanding with a par value of $1 per share and a market value of $13 per share. The balance sheet shows $8,000 in the common stock account, $26,000 in the capital in excess of par account, and $36,800 in the retained earnings account. The firm just announced a 100 percent stock dividend. What will be the balance in the retained earnings account after this dividend? 
 

70.

The Tanning Bed has 10,000 shares of stock outstanding with a par value of $1 per share and a market value of $8 per share. The balance sheet shows $10,000 in the common stock account, $60,000 in the capital in excess of par account, and $94,300 in the retained earnings account. The firm just announced a 100 percent stock dividend. What will be the value of the common stock account after the dividend? 
 

71.

Verbal Communications, Inc., has 14,000 shares of stock outstanding with a par value of $1 per share and a market value of $32 per share. The firm just announced a 100 percent stock dividend. What is the market value per share after the dividend? 
 

72.

Della's Pool Halls has 12,000 shares of stock outstanding with a par value of $1 per share and a market price of $39 a share. The firm just announced a 4-for-3 stock split. How many shares of stock will be outstanding after the split? 
 

73.

Alfonzo's Italian House has 25,000 shares of stock outstanding with a par value of $1 per share and a market price of $28 a share. The firm just announced a 5-for-3 stock split. What will the market price per share be after the split? 
 

74.

South Shore Limited has 21,000 shares of stock outstanding with a par value of $1 per share and a market price of $7.50 a share. The firm just announced a 5-for-2 stock split. What will the par value of the stock be after the split? 
 

75.

Mario's has 18,000 shares of stock outstanding with a par value of $1 per share and a market price of $4 a share. The balance sheet shows $18,000 in the common stock account, $368,000 in the paid in surplus account, and $64,000 in the retained earnings account. The firm just announced a 5-for-1 stock split. What will the paid in surplus account value be after the split? 
 

76.

Prezario's has 25,000 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $847,000. Currently, the retained earnings account balance is $428,000 and the capital in excess of par value account balance is $187,000. The company just announced a 3-for-1 stock split. What is the common stock account balance after the stock split? 
 

77.

The Peanut Shack has 6,5000 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $145,600. The company just announced a 3-for-2 stock split. What will the market price per share be after the split? 
 

78.

Western Mountain Water has 11,000 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $135,000. The balance sheet shows a capital in excess of par value account balance of $68,000 and retained earnings of $49,000. The company just announced a 2-for-1 stock split. What will the capital in excess of par value account balance be after the split? 
 

79.

The Peace River Corporation has 62,000 shares of stock outstanding at a market price of $48 a share. The company has just announced a 3-for-2 stock split. How many shares of stock will be outstanding after the split? 
 

80.

Cooper Brands, Inc., has 68,000 shares of stock outstanding at a market price of $63 a share. The par value is $1 per share. The company has just announced a 5-for-4 stock split. What will the market price per share be after the split? 
 

81.

The Mining Co. has 20,000 shares of stock outstanding. The current market value of the firm is $328,000. The company has retained earnings of $27,000, capital in excess of par value of $160,000, and a common stock account value of $40,000. The company is planning a 2-for-5 reverse stock split. What will the par value per share be after the split? 
 

82.

East Coast Marina has 220,000 shares of stock outstanding. The current market value of the firm is $18.92 million. The company has retained earnings of $3.8 million, paid in surplus of $6.7 million, and a common stock account value of $220,000. The company is planning a 3-for-2 stock split. What will the market price per share be after the split? 
 

83.

Jean's Warehouse has 16,000 shares of stock outstanding. The current market value of the firm is $768,000. The company has retained earnings of $130,000, paid in surplus of $321,000, and a common stock account value of 16,000. The company is planning a 5-for-3 stock split. What will the retained earnings account value be after the split? 
 

84.

The common stock of Checkers, Inc. is selling for $56 a share and the par value per share is $1. Currently, the firm has a total market value of $812,000. How many shares of stock will be outstanding if the firm does a 3-for-2 stock split? 
 

85.

The common stock of Gillen Entertainment is selling for $65 a share. The par value per share is $1. Currently, the firm has a total market value of $936,000. How many shares of stock will be outstanding if the firm does a 5-for-2 stock split? 
 

86.

Purvis Lawn Products has 18,000 shares of stock outstanding at a market price of $5.50 a share. What will the market price per share be if the company does a 1-for-4 reverse stock split? 
 

87.

The Olive Vase has 56,000 shares of stock outstanding with a par value of $1 per share and a market value of $11 a share. The company just announced a 3-for-4 reverse stock split. Currently, you own 500 shares of this stock. What will the total value of your shares be after the reverse stock split? 
 

88.

The Green Florist has 28,000 shares of stock outstanding with a par value of $1 per share and a market value of $7 a share. The company just announced a 2-for-5 reverse stock split. Currently, you own 300 shares of this stock. How many shares will you own after the reverse stock split? 
 

89.

City Center Pharmacy has 11,500 shares of stock outstanding with a par value of $1 per share and a market value of $12 a share. The company just announced a 3-for-7 reverse stock split. What will the market value per share be after the reverse stock split? 
 

90.

The Green Fiddle has declared a $5 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Green Fiddle stock sells for $71.50 per share, and the stock is about to go ex-dividend. What will the ex-dividend price be? 
 

91.

The owners' equity accounts for Blueswell Industries are shown here:

  

If Blueswell Industries declares a 1-for-5 reverse stock split, there will be ____ shares outstanding at a par value of _____ per share. 
 

92.

The Turtle Cave currently has 160,000 shares of stock outstanding that sell for $60 per share. Assume no market imperfections or tax effects exist. What will the new share price be if the firm declares a 10 percent stock dividend? 
 

93.

Glendale Paving currently has 120,000 shares of stock outstanding that sell for $54 per share. Assume no market imperfections or tax effects exist. What will the new share price be if the firm declares a 40 percent stock dividend? 
 

94.

The balance sheet for Apple Pie Corp. is shown here in market value terms. There are 5,000 shares of stock outstanding.

  

The company has declared a dividend of $1.80 per share. The stock goes ex-dividend tomorrow. Ignore any tax effects. What will the price of the stock be tomorrow? 
 

95.

The balance sheet for Apple Pie Corp. is shown here in market value terms. There are 5,000 shares of stock outstanding.

  

The company has announced that it is going to repurchase $4,350 worth of stock. What will the price of the stock be after this repurchase? 
 

96.

The market value balance sheet for Inbox Manufacturing is shown here. Inbox has declared a 15 percent stock dividend. The stock goes ex-dividend tomorrow (the chronology for a stock dividend is similar to that for a cash dividend). There are 13,000 shares outstanding. What is the ex-dividend stock price?

   
 

97.

You own 1,000 shares of stock in Avondale Corporation. You will receive an 80-cent per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $40 per share. The required return on Avondale stock is 14 percent. What will your dividend income be this year if you use homemade dividends to create two equal annual dividend payments? 
 

98.

You own 1,500 shares of stock in Avondale Corporation. You will receive a $0.80 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $35 per share. The required return on Avondale stock is 16 percent. You only want $200 total in dividends in year one and accomplish this by using homemade dividends. What will your total dividend amount be in year two? 
 

99.

Built Rite Corp. is evaluating an extra dividend versus a share repurchase. In either case, $5,500 would be spent. Current earnings are $0.80 per share, and the stock currently sells for $33 per share. There are 250 shares outstanding. Ignore taxes and other imperfections. You own one share of stock in this company. If the company issues the dividend, your total investment will be worth ____ as compared to ____ if the company opts for a share repurchase. 
 

100.

You are the CFO of a non-dividend paying firm that currently has excess cash reserves. You are preparing for an internal management meeting where dividends are on the agenda. You know that the CEO favors the commencement of a dividend program. You, however, oppose any dividend plan at this time. Write a good argument that you can use in the meeting to support your position. 
 

101.

Explain the meaning of the dividend clientele effect and why it is important. 
 

102.

Stock repurchase programs appear to becoming more popular with business firms. Explain the appeal of these programs as compared to that of cash dividend programs from the stock issuer's point of view. 
 

103.

Identify some real-world factors which might make it more difficult for an individual to effectively create a homemade dividend policy. 
 

104.

Explain how cash dividends affect individual shareholders differently than an equal amount of funds spent on a repurchase.