Dividend Policy

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Question 1
Free
Multiple Choice

The dividend clientele effect concept was originally developed by

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A

Myron Gordon

B

Merton Miller and Franco Modigliani

C

Milton Friedman

D

Paul Samuelson

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Question 2
Free
Multiple Choice

Dividend reinvestment plans involve the purchase of

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A

newly issued stock

B

existing stock

C

letter stock

D

both newly issued and existing stock

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Question 3
Free
Multiple Choice

Most states limit dividend policy by requiring

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A

that dividends may not be paid unless the firm generates net earnings during the most recent year

B

that dividends may only be paid out of retained earnings

C

that dividends may not be paid when the firm is insolvent

D

the firm's capital to be used to pay dividends

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Question 4
Free
Multiple Choice

The following factors influence a firm's ability and/or willingness to pay dividends:

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A

liquidity

B

borrowing capacity and access to capital markets

C

earnings stability

D

all of the above

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Question 5
Free
Multiple Choice

In the theoretical world of Miller and Modigliani

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A

a firm should pay out 100 percent of earnings as dividends to maximize shareholder wealth

B

the marginal tax rates facing investors are the most important single determinant of dividend policy

C

dividends are important only for their informational content

D

dividends reduce investors' uncertainty

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Question 6
Multiple Choice

Finance researcher Myron Gordon argues that

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A
risk-averse shareholders may prefer some dividends over the promise of future capital gains if the interest rate is expected to decline
B
dividends reduce uncertainty, and thus the payment of dividends will increase the firm's value
C
the clientele effect has no influence on share value
D
the existence of transaction costs has no impact on the dividend decision
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Question 7
Multiple Choice

The passive residual dividend policy asserts that

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A
dividends should be paid out only if the firm does not have enough acceptable investment projects to utilize all earnings internally.
B
dividends should be paid only when the firm has ready access to new equity markets
C
retained earnings, being the residual earnings of the firm, should always be paid out to existing stockholders
D
investment policy and dividend policy decisions should always be made independently
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Question 8
Multiple Choice

The passive residual dividend policy seems to be inconsistent with

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A
a world having significant transactions costs associated with new stock issues
B
a stable dividend policy
C
a policy of paying only stock dividends
D
a share-repurchase policy
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Question 9
Multiple Choice

Many firms try to maintain a stable dividend policy

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A
because of the informational content of dividend changes
B
in order to satisfy investors who rely on dividends as a primary source of income
C
in order to remain as eligible investments for many financial institutions
D
all of the above
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Question 10
Multiple Choice

The record date in the normal dividend payment procedure is

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A
the same day as the declaration date
B
the same day as the ex-dividend date
C
the date when the firm makes a list from its stock transfer books of shareholders eligible to receive the dividend
D
one day prior to the payment date
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Question 11
Multiple Choice

A passive residual dividend policy suggests that the firm will:

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A
pay the same dollar amount of dividends every year
B
pay the same percentage of earnings in dividends every year
C
pay a dividend only after all viable investment projects have been exhausted
D
omit a dividend in the next period
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Question 12
Multiple Choice

Which phrase below best summarizes the arguments supporting a stable dollar dividend policy?

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A
earnings stability
B
beta
C
capital structure
D
informational content
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Question 13
Multiple Choice

In a large, widely-held corporation, the financial manager should consider all of the following in establishing a dividend policy EXCEPT:

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A
individual shareholder preferences
B
cash flow needs
C
informational content of dividends
D
investment opportunities
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Question 14
Multiple Choice

Which of the following is not a direct result of a stock dividend?

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A
the number of shares outstanding is increased
B
the market price of each outstanding share is increased
C
the amounts shown in the firm's capital accounts are redistributed
D
the per-share price of the stock goes up
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Question 15
Multiple Choice

Firms carry out share repurchase agreements in a number of ways, including all of the following EXCEPT:

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A
buy from shareholders through a tender offer
B
buy outstanding shares in the open market
C
buy treasury shares
D
negotiate a purchase privately from large holders, particularly institutions
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Question 16
Multiple Choice

Rank in chronological sequence the payment date, ex-dividend date, declaration date, and record date.

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A
record date, declaration date, ex-dividend date, payment date
B
declaration date, record date, ex-dividend date, payment date
C
declaration date, record date, payment date, ex- dividend date
D
declaration date, ex-dividend date, record date, payment date
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Question 17
Multiple Choice

Firms with the ____ earnings growth tend to have the ____ dividend payout ratio.

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A
highest, highest
B
highest, lowest
C
lowest, lowest
D
lowest, highest
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Question 18
Multiple Choice

The value of a firm is influenced by three types of financial decisions including all of the following EXCEPT:

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A
dividend decisions
B
financing decisions
C
investment decisions
D
par value decisions
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Question 19
Multiple Choice

The capital impairment restriction, a legal constraint on dividend payments, states that

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A
only the current year's earnings may be used for dividend payments
B
dividends may not be paid out of stockholder's equity
C
a firm's permanent capital cannot be used to make dividend payments
D
a firm's capital surplus can be used to make dividend payments
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Question 20
Multiple Choice

A legal constraint that dividends must be paid out of a firm's present and past net earnings is known as the ____ restriction.

Choose correct answer/s
A
net earnings
B
net operating earnings
C
initial investment
D
earned capital
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