CF2.4.practice2

Which one of the following is not a reason why firms choose repurchases rather than dividends?

A. increase the value of existing stock options

B. provide shareholders with a tax advantage

C. offset dilution

D. conserve cash

• A

• B

• C

• D

A change in dividend policy does not affect the value of a share of stock as long as:

A. the dividend payout ratio remains constant.

B. the following dividends are changed by the same amount.

C. all of the distributable cash flow is paid out.

D. there is an offsetting change in stock repurchases.

• A

• B

• C

• D

The behavioral finance concept of self-control is an argument in favor of:

A. frequent stock splits.

B. low cash dividends.

C. stock dividends.

D. high cash dividend

• A

• B

• C

• D

According to the clientele effect, firms can only boost their stock price:

A. by increasing their regular cash dividends.

B. by setting their dividend to the level expected by the highest-dividend-receiving satisfied clientele group.

C. by commencing dividend payments if they are a non-dividend-paying firm.

D. if an unsatisfied clientele group exists.

• A

• B

• C

• D

Financial executives place the greatest importance on which one of these factors when setting dividend policy?

A. setting a high-dividend payout ratio even when earnings are unstable

B. maintaining a consistent dividend policy

C. increasing dividends even if they need to be lowered in the near future

D. reducing dividends anytime future earnings are in doubt

• A

• B

• C

• D

Assume you own 300 shares of ABC stock and receive a stock dividend of 5 percent. As a result, the number of shares you own will change to _____ shares while your total wealth will increase by ___ percent.

A. 305; 5

B. 315; 0

C. 305; 0

D. 315; 5

• A

• B

• C

• D

Alpha Co. is paying a $.72 per share dividend today. There are 138,000 shares outstanding with a par value of $1 per share. As a result of this dividend, the:

A. retained earnings will decrease by $99,360.

B. retained earnings will decrease by $138,000.

C. common stock account will decrease by $138,000.

D. common stock account will decrease by $99,360.

• A

• B

• C

• D

You own 300 shares of Abco stock. The firms plans on issuing a dividend of $2.10 a share one year from today and then issuing a final liquidating dividend of $36.45 a share two years from today. Your required rate of return is 14.5 percent. Ignoring taxes, what is the value of one share of this stock to you today?

A. $33.93

B. $29.64

C. $26.62

D. $27.80

• A

• B

• C

• D

Allison’s has a market value equal to its book value. Currently, the firm has excess cash of $1,100 and other assets of $12,400. Equity is worth $13,500. The firm has 2,500 shares of stock outstanding and net income of $10,800. What will be the new earnings per share if the firm uses its excess cash to complete a stock repurchase?

A. $4.32

B. $4.50

C. $4.82

D. $4.70

• A

• B

• C

• D

Murphy's has shares of stock outstanding with a par value of $1 per share and a market value of $24.60 per share. The balance sheet shows $32,500 in the capital in excess of par account, $12,000 in the common stock account, and $68,700 in the retained earnings account. The firm just announced a 10 percent stock dividend. What will the balance be in the retained earnings account after the dividend?

A. $39,180

B. $48,300

C. $59,120

D. $67,520

• A

• B

• C

• D