Dividend Decisions Quiz

Which of the following best describes the significance of dividend decisions?

• It directly affects the capital structure of the firm

• It influences the market price of the firm's shares

• It has no impact on the firm's value

• It only concerns the shareholders

Which of the following is a key factor in the concept of dividend policy?

• Maximization of shareholder wealth

• Minimization of taxes

• Reduction of firm's risk

• Maintaining the company's debt ratio

Which model suggests that dividends are irrelevant to the value of the firm?

• Walter's model

• Gordon's model

• Modigliani-Miller Model

• Bird in the hand theory

According to Walter's model, when should a firm pay out dividends?

• When the return on investment (r) is greater than the cost of capital (k)

• When the return on investment (r) is less than the cost of capital (k)

• When the return on investment (r) is equal to the cost of capital (k)

• When the firm is facing liquidity problems

Which theory posits that dividends reduce uncertainty for investors, thereby increasing a firm's value?

• Gordon's model

• Walter's model

• Bird in the hand approach

• MM Theory

The "bird in the hand" argument suggests that:

• Dividends today are less valuable than future dividends

• Investors prefer certain dividends over potential future capital gains

• Reinvestment of earnings is more valuable than dividend payouts

• Investors are indifferent to dividend payouts

Which of the following is an assumption of the Modigliani-Miller Model (MM Theory)?

• No taxes

• Varying discount rates for different firms

• Imperfect capital markets

• Presence of transaction costs

In Gordon's Model, the value of a firm is given by:

• D / (k - g)

• E / (1 - b)

• P0 = D0 / (1 + r)

• P0 = D1 / r

Walter's model assumes that the firm's rate of return (r) and the cost of capital (k) are:

• a) Variable

• b) Constant
  
  

• c) Independent

• d) Inversely related

Which type of firm is most likely to pay high dividends according to the relevance theory?

• Growth firms

• Declining firms

• Normal firms

• All of the above