Chapter 11 Dividends

What does the dividend yield tell us?

• The company's market value

• The annual amount of cash dividends distributed to common stockholders relative to the stock’s market price

• The stock market’s expectations for a company’s future growth in earnings, dividends, and opportunities

• The company's profitability on a per share basis

What is the impact of dividends on a company's cash flow?

• Dividends do not affect a company's cash flow

• Dividends increase a company's cash flow

• Dividends decrease a company's cash flow

• Dividends have a variable impact on a company's cash flow

What is the effect of a stock dividend on a company's retained earnings?

• Stock dividends do not affect retained earnings

• Stock dividends increase retained earnings

• Stock dividends decrease retained earnings

• Stock dividends have a variable effect on retained earnings

What does a high dividend payout ratio indicate?

• The company is likely in financial distress

• The company has a high profit margin

• The company is returning a large portion of its earnings to shareholders

• The company has a low stock price

How does a stock split affect a company's retained earnings?

• Stock splits do not affect retained earnings

• Stock splits increase retained earnings

• Stock splits decrease retained earnings

• Stock splits have a variable effect on retained earnings

What is the primary difference between small stock and large stock dividends?

• Small stock dividends involve cash, while large stock dividends involve additional shares

• Small stock dividends involve additional shares, while large stock dividends involve cash

• Small stock dividends involve a smaller percentage of additional shares, while large stock dividends involve a larger percentage

• There is no difference between small stock and large stock dividends

How does a large stock dividend impact a company's stock price?

• Large stock dividends increase the stock price

• Large stock dividends decrease the stock price

• Large stock dividends do not affect the stock price

• The impact of large stock dividends on the stock price varies

What is the impact of a stock split on a company's market capitalization?

• Stock splits increase the market capitalization

• Stock splits decrease the market capitalization

• Stock splits do not affect the market capitalization

• The impact of stock splits on market capitalization varies

How does a reverse stock split affect the number of shares outstanding?

• Reverse stock splits increase the number of shares outstanding

• Reverse stock splits decrease the number of shares outstanding

• Reverse stock splits do not affect the number of shares outstanding

• The impact of reverse stock splits on the number of shares outstanding varies

What is the primary reason for a company to perform a stock split?

• To increase the company's market capitalization

• To decrease the company's market capitalization

• To make the stock more affordable to small investors

• To increase the company's cash flow