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Exam 17: Dividends and Dividend Policy

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Question 41

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The dividend market is in equilibrium when:

A) all firms adopt a low dividend policy.
B) half of the firms adopt a low dividend policy and half adopt a high dividend policy.
C) all clienteles are satisfied.
D) dividends remain constant and no special dividends are declared.
E) the total amount of the annual dividends is equal to the net income for the year.

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

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Question 42

Multiple Choice

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HJ Corporation has excess cash and has opted to buy some of its shares of outstanding common stock. What is this process of buying called?

A) stock dividend
B) stock split
C) stock repurchase
D) stock recap
E) stock repeal

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

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Question 43

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You are the CFO of a non-dividend paying firm that currently has excess cash reserves. You are preparing for an internal management meeting where dividends are on the agenda. You know that the CEO favors the commencement of a dividend program. You, however, oppose any dividend plan at this time. Write a good argument that you can use in the meeting to support your position.

Built Rite Corp. is evaluating an extra dividend versus a share repurchase. In either case, $5,500 would be spent. Current earnings are $0.80 per share, and the stock currently sells for $33 per share. There are 250 shares outstanding. Ignore taxes and other imperfections. You own one share of stock in this company. If the company issues the dividend, your total investment will be worth ____ as compared to ____ if the company opts for a share repurchase.

Steve purchased 300 shares of Alpha Beta stock on May 9. On May 15, he purchased another 200 shares and then on May 22 he purchased a final 400 shares of Alpha Beta stock. The company declared a dividend of $1.60 a share on April 30 to holders of record on Friday, May 23. The dividend is payable on June 2. How much dividend income will Steve receive on June 2 from Alpha Beta?

Jenningston Mills has a market value equal to its book value. Currently, the firm has excess cash of $1,200, other assets of $5,800, and equity valued at $3,750. The firm has 250 shares of stock outstanding and net income of $420. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase?

The last date on which you can purchase shares of stock and still receive the dividend is the date which is _____ business days prior to the date of record.

You own 1,000 shares of stock in Avondale Corporation. You will receive a $0.80 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $35 per share. The required return on Avondale stock is 16 percent. You only want $200 total in dividends in year one and accomplish this by using homemade dividends. What will your total dividend amount be in year two?

Dividend payments are mailed on which one of the following dates?

The market value balance sheet for Inbox Manufacturing is shown here. Inbox has declared a 23 percent stock dividend. The stock goes ex-dividend tomorrow (the chronology for a stock dividend is similar to that for a cash dividend) . There are 13,000 shares outstanding. What is the ex-dividend stock price?

You own 2,200 shares of Deltona Hardware. The company has stated that it plans on issuing a dividend of $0.42 a share at the end of this year and then issuing a final liquidating dividend of $2.90 a share at the end of next year. Your required rate of return on this security is 16 percent. Ignoring taxes, what is the value of one share of this stock to you today?

Which one of the following dates is used to determine the names of shareholders who will receive a dividend payment?

Alfonzo's Italian House has 25,000 shares of stock outstanding with a par value of $1 per share and a market price of $36 a share. The firm just announced a 5-for-3 stock split. What will the market price per share be after the split?

Identify some real-world factors which might make it more difficult for an individual to effectively create a homemade dividend policy.

Which one of the following refers to the ability of shareholders to undo a firm's dividend policy and create an alternative dividend policy by reinvesting dividends or selling shares of stock?

Which of the following tends to increase the ability of a shareholder to create his or her own homemade dividend policy? I. low taxes on capital gains II. dividend reinvestment plans III. large holdings of shares IV. low cost equity purchases

The common stock of Pierson Enterprises has historically had a high dividend yield and is expected to continue to do so. As a result, the majority of its shareholders are individuals and entities that are seeking a regular source of cash income. Most of these shareholders pay either no taxes or a relatively low amount of taxes. The fact that most of these shareholders have similar characteristics is referred to by which one of the following terms?

The board of directors of Wilson Sporting Equipment met this afternoon and passed a resolution to pay a cash dividend of $0.42 a share next month. In relation to this dividend, today is referred to as which one of the following dates?

Which one of the following is a result of a stock repurchase?

A $0.60 quarterly cash payment paid by T.L. Jones & Co. to its shareholders in the normal course of business is called a: