Dividends

Payments made by a corporation to its shareholders, in the form of either cash, stock or payments in kind, are called:

• net income.

• retained earnings.

• dividends.

• redistributions.

A form of equity which receives no preferential treatment in either the payment of dividends or in bankruptcy distributions is called _____ stock.

• dual class

• cumulative

• preferred

• common

A cash payment made by a firm to its owners in the normal course of business is called a:

• share repurchase.

• regular cash dividend.

• liquidating dividend.

• special dividend.

The date on which the board of directors passes a resolution authorizing payment of a dividend to the shareholders is the _____ date.

• ex-dividend

• record

• declaration

• payment

A _____ is an alternative method to cash dividends which is used to pay out a firm's earnings to shareholders.

• merger

• acquisition

• stock split

• share repurchase

The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model.

• zero growth

• dividend growth

• capital pricing

• earnings capitalization

The constant dividend growth model is:

• generally used in practice because most stocks have a constant growth rate.

• generally used in practice because the historical growth rate of most stocks is constant.

• generally not used in practice because most stocks grow at a non constant rate.

• generally not used in practice because the constant growth rate is usually higher than the required rate of return.

The constant dividend growth model:

I. assumes that dividends increase at a constant rate forever.

II. can be used to compute a stock price at any point of time.

III. states that the market price of a stock is only affected by the amount of the dividend.

IV. considers capital gains but ignores the dividend yield.

• I only

• II only

• I and II only

• III and IV only

The underlying assumption of the dividend growth model is that a stock is worth:

• the same amount to every investor regardless of their desired rate of return.

• the present value of the future income which the stock generates.

• an amount computed as the next annual dividend divided by the market rate of return.

• the same amount as any other stock that pays the same current dividend and has the same required rate of return.

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