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Which one of these statements is correct regarding various types of investors?


A) Taxpayers in high tax brackets tend to prefer dividends over capital gains.
B) Pension funds are taxed at a low rate of 10 percent on both dividends and capital gains.
C) Corporations can exclude at least 70 percent of their dividend income from taxes.
D) Pension funds pay taxes on capital gains but not on dividends.
E) Corporations can exclude at least 70 percent of both their dividend income and capital gains from taxes.

F) A) and B)
G) B) and E)

Correct Answer

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If all clientele groups are currently satisfied,then


A) all future cash dividends should be in the form of stock dividends.
B) changes in a single company's dividend policy will have no effect on the company's market value.
C) companies can increase their market value by increasing their current dividends.
D) all future cash distributions should be in the form of stock repurchases.
E) all investors are taxed equally on their dividend income and capital gains.

F) All of the above
G) D) and E)

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In respect to a balance sheet,a stock split will


A) not affect the total value of any of the equity accounts.
B) increase the total value of the common stock account.
C) decrease the total book value of owners' equity.
D) increase the value of the capital in excess of par value account.
E) decrease the value of the retained earnings account.

F) D) and E)
G) A) and B)

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You currently own 300 shares of Hanover Co.The stock closed at a price of $32.09 a share today.Tomorrow morning,a stock dividend of 8 percent will occur.What will be the change in the value of your investment tomorrow assuming there are no other factors affecting the market price of the stock?


A) $0
B) −$528.60
C) $399.70
D) −$770.16
E) $770.16

F) A) and C)
G) D) and E)

Correct Answer

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Eisley's has a market value equal to its book value,excess cash of $528,other assets of $13,900,and equity of $9,900.The firm has 600 shares of stock outstanding and net income of $1,450.Assume the firm uses all of its excess cash for a stock repurchase.What will the price per share be after the repurchase?


A) $16.50
B) $17.80
C) $18.00
D) $15.90
E) $17.67

F) A) and E)
G) D) and E)

Correct Answer

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The dividend amount divided by the earnings per share amount is referred to as the dividend


A) yield.
B) per share.
C) payment.
D) payout.
E) declaration.

F) D) and E)
G) A) and B)

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


A) share repurchase.
B) liquidating dividend.
C) special dividend.
D) regular cash dividend.
E) extra cash dividend.

F) A) and B)
G) A) and C)

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KLT just paid an annual dividend of $1.62 a share.The firm has a target payout ratio of 0.55 and a speed of adjustment value of 0.4.What is the expected value of next year's annual dividend if the firm expects its earnings per share to be $3.98?


A) $2.50
B) $1.85
C) $1.74
D) $1.92
E) $1.71

F) B) and E)
G) A) and E)

Correct Answer

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Behavioral finance supports the


A) replacement of cash dividends with stock dividends.
B) simultaneous payment of cash dividends along with stock repurchases.
C) payment of dividends rather than stock repurchases.
D) movement to end cash dividends and just have investors buy and sell shares to meet their cash needs.
E) increased use of stock splits rather than the distribution of cash in any form.

F) A) and B)
G) A) and D)

Correct Answer

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Which one of these can a shareholder use to alter the dividend policy of a firm?


A) Homemade dividend
B) Stock split
C) Reverse stock split
D) Stock repurchase
E) Stock dividend

F) All of the above
G) C) and E)

Correct Answer

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The Uptowner has 11,000 shares of stock outstanding with a par value of $1 per share and a market value of $14 per share.The balance sheet shows $11,000 in the common stock account,$60,300 in the capital in excess of par value account,and $72,100 in the retained earnings account.The firm just announced a large stock dividend of 65 percent.What is the value of the common stock account after the dividend?


A) $17,750
B) $18,500
C) $18,150
D) $11,000
E) $14,000

F) A) and C)
G) A) and D)

Correct Answer

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Which one of these increases a firm's number of shares outstanding without changing its owners' equity?


A) Share repurchase
B) Tender offer
C) Special dividend
D) Stock split
E) Liquidating dividend

F) C) and D)
G) A) and D)

Correct Answer

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A firm has a market value equal to its book value,excess cash of $400,other assets of $9,200,and equity of $9,800.The firm has 500 shares of stock outstanding and net income of $420.The firm has decided to spend all of its excess cash on a share repurchase program.How many shares of stock will be outstanding after the stock repurchase is completed?


A) 440 shares
B) 445 shares
C) 480 shares
D) 910 shares
E) 915 shares

F) A) and B)
G) B) and C)

Correct Answer

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Shareholders are more apt to prefer a high dividend payout if a firm


A) has high flotation costs.
B) has a high rate of growth which requires additional funding.
C) offers high capital gains that are taxed at a favorable rate.
D) has lower tax rates than the shareholder.
E) will spend the funds on a high-premium acquisition if the dividend is not paid.

F) None of the above
G) A) and B)

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On May 18th,you purchased 900 shares of LKM stock.On June 1st,you sold 100 shares of this stock for $32 a share.You sold an additional 200 shares on July 6th at a price of $34.50 a share.The company declared a per share dividend of $.33 on June 20th to holders of record as of Friday,July 8th.This dividend is payable on July 29th.How much dividend income will you receive on July 29th as a result of your ownership of LKM stock?


A) $0
B) $198
C) $240
D) $264
E) $297

F) B) and E)
G) A) and B)

Correct Answer

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Bruno's has 13,000 shares of stock outstanding with a par value of $1 per share and a market value of $38.29 per share.The balance sheet shows $13,000 in the common stock account,$78,300 in the capital in excess of par value account,and $82,500 in retained earnings.The firm just announced a large stock dividend of 40 percent.What will be the balance in the capital in excess of par value account after the dividend?


A) $272,208
B) $277,408
C) $145,300
D) $78,300
E) $91,300

F) B) and C)
G) C) and D)

Correct Answer

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The date by which a stockholder must be registered on the firm's roll as having share ownership in order to receive a declared dividend is called the


A) ex-dividend date.
B) date of record.
C) ex-rights date.
D) declaration date.
E) date of payment.

F) A) and D)
G) A) and B)

Correct Answer

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Pluto's has 15,300 shares of stock outstanding with a par value of $1 per share and a market value of $22.10 per share.The balance sheet shows $324,800 in the capital in excess of par account,$15,300 in the common stock account,and $174,700 in the retained earnings account.The firm just announced a small stock dividend of 12 percent.What will be the balance in the retained earnings account after the dividend?


A) $129,700.00
B) $134,124.40
C) $128,309.18
D) $132,360.00
E) $128,509.90

F) C) and D)
G) A) and E)

Correct Answer

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Edie's has 14,500 shares of stock outstanding with a par value of $1 per share and a market value of $5.80 a share.What type of stock split would be best if the stock's proper trading range centers on $16 a share?


A) Stock split of eight-for-three
B) Stock split of eleven-for-four
C) Reverse stock split of three-for-one
D) Reverse stock split of three-for-eight
E) Reverse stock split of four-for-eleven

F) B) and D)
G) A) and E)

Correct Answer

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From a tax-paying shareholder's point of view,a stock repurchase


A) is equivalent to a stock split.
B) is more desirable than a cash dividend.
C) is more highly taxed than a cash dividend.
D) avoids all taxation.
E) creates a tax liability even if the investor does not participate in the repurchase.

F) A) and B)
G) A) and C)

Correct Answer

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