Chapter 17: Payout Policy

A firm can pay out its cash earnings to its shareholders in which of the following ways?

• Red envelope

• Allowance

• Share repurchase

• Pocket money

The date on which the board authorises the dividend is the:

• Declaration date

• Distribution date

• Record date

• Ex-dividend date

The date, set by the board, on which the firm will send out the dividend checks to all registered shareholders

The term Pcum term is:

• The personal tax rate for capital gains

• The price per share after a dividend is paid

• The price per share before a dividend is paid

• The personal tax rate for dividends

If there are no imperfections, then a cash dividend and a share repurchase are the same to investors.

• True

• False

In stock dividend, each shareholder who owns the stock before the ex-dividend date receives ____ from the firm.

• Additional shares

• Additional shares and stock

• Cash only

• Shares for partial cash payment

The payment of dividends is decided by

• Shareholders

• Board of Directors

• CEO

• Senior management

When a firm announces to all of its stockholders that it is willing to buy a fixed number of shares at a specific price, it is referred to as a tender offer.

• True

• False

Which of the following is NOT a reason why firms should choose to retain cash?

• to preserve financial slack for future growth opportunities

• to avoid financial distress costs

• to increase their leverage

Who pays capital gain taxes under the current U.S. federal tax rates?

• Buy and hold individual investor

• one-year individual investor

• Pension fund

• nonprofit endowment funds