Sharing Firm Wealth: Dividends, Share Repurchases, And Other Payouts

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Question 1

Free

Multiple Choice

Which of the following is the primary goal of a firm?

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Maximize sales

Maximize net income

Maximize earnings per share

Maximize shareholder wealth

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Question 2

Free

Multiple Choice

Which of these is the idea that it does not matter whether a firm pays dividends or not as derived from a Modigliani and Miller Theorem?

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Dividend indifference theory

Dividend irrelevance theorem

Shareholder maximization theorem

Shareholder rationalization theorem

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Question 3

Free

Multiple Choice

The Jobs and Growth Tax Relief Reconciliation Act of 2003 changed which of the following?

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The general tax rate applicable to corporations

The general tax rate applicable to net capital gains for individuals

The general tax rate applicable to net capital gains for corporations

The general tax rate applicable to foreign corporations

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Question 4

Free

Multiple Choice

For most investors, the equalization of the tax rates on capital gains and dividends did which of the following?

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Moved the real world further from the concept of the dividend indifference theory

Moved the real world closer to the concept of the dividend indifference theory

Moved the real world closer to the concept of the dividend irrelevance theorem

Moved the real world further from the concept of the dividend irrelevance theorem

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Question 5

Free

Multiple Choice

Which of the following argues that dividends that the firm has committed to pay are less risky to risk-averse investors than are potential future capital gains?

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Dividend irrelevance theorem

Dividend indifference theory

Bird-in-the-hand theory

Jobs and Growth Tax Relief Reconciliation Act

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Question 6

Multiple Choice

Modigliani and Miller disagreed with the proposal by Gordon and Lintner regarding dividends. Why?

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M&M claimed that many, if not most, investors will spend their dividends on consumer goods.

M&M claimed that many, if not most, investors will reinvest their dividends in the same or similar manner that the firms would.

M&M claimed that many, if not most, investors would prefer capital gains.

M&M claimed that firms only attract investors who would prefer dividends.

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Question 7

Multiple Choice

What important tax-based reason suggests why some investors might prefer capital gains?

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Investors pay taxes only on dividends, not on capital gains.

Investors pay capital gains taxes as their stock appreciates, not at the time of sale, so they will be indifferent to selling the stock.

Investors who don't need or want any cash will not accept their dividend and they therefore will not incur any obligation to pay taxes.

Investors who don't need or want any cash will not sell their stock and they therefore will not incur any obligation to pay taxes.

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Question 8

Multiple Choice

Which of the following is true regarding the information effect of dividend policies?

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Increases in dividends are seen as negative signals concerning the firm's performance.

Increases in dividends are seen as negative signals concerning the firm's expected future cash flow levels.

If a firm announces an increase in the next dividend, analysts see such announcements as a very positive signal.

If a firm announces an increase in the next dividend, analysts see such announcements as a very negative signal.

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Question 9

Multiple Choice

Which of the following refers to the fact that, in real life, investors do not have identical desires about taxability and timing of firm payouts?

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Clientele effect

Dividend irrelevance effect

Capital gain theory

Bird-in-the-hand theory

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Question 10

Multiple Choice

Which of the following can be a benefit of the clientele effect?

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New investors who were previously uninterested in the stock may be attracted to it because of a policy change.

If firms change their dividend policy, the investors who desire the previous policy will sell their shares.

If the firms change their dividend policy, the investors will be unaffected by the change due to the dividend irrelevance theorem.

If the firms change their dividend policy, it will maximize shareholder wealth.

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Question 11

Multiple Choice

Which of the following is the tendency of investors to find a payout policy that they prefer and stick with it?

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Bird-in-the-hand theory

Clientele effect policy

Residual dividend model

Dividend irrelevance theorem

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Question 12

Multiple Choice

Which of the following is a policy of a firm paying out only funds that are left over after all positive NPV projects are funded?

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Bird-in-the-hand theory

Clientele effect policy

Residual dividend model

Dividend irrelevance theorem

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Question 13

Multiple Choice

Which of the following firms is more likely to use extraordinary dividends?

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One with cyclical sales

One with stable sales

Firms with either cyclical or stable sales

Firms with neither cyclical nor stable sales

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Question 14

Multiple Choice

When does a dividend become a firm obligation?

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When the firm declares them

When the firm pays them

When the firm records them

On the ex-dividend date

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Question 15

Multiple Choice

Which of the following is when the Board of Directors announces its intention to pay a dividend?

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Declaration date

Ex-dividend date

Record date

Payment date

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Question 16

Multiple Choice

Regarding dividend payment procedures, which of the following is the first day that the shares will be traded without the dividend attached?

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Declaration date

Ex-dividend date

Record date

Payment date

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Question 17

Multiple Choice

Regarding dividend payment procedures, which of the following is the date the firm would look on its books to find to whom they can start addressing payments?

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Declaration date

Ex-dividend date

Record date

Payment date

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Question 18

Multiple Choice

Which of the following is the date the firm sends dividends out to the shareholders?

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Declaration date

Ex-dividend date

Record date

Payment date

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Question 19

Multiple Choice

As the number of days until the next dividend decreases, what will happen to the present value of the stock?

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It will decrease.

It will increase.

It will stay the same.

One cannot determine what will happen to the price of the stock in this situation.

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Question 20

Multiple Choice

What will happen to the price of the stock once the stock goes ex-dividend?

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It will decrease.

It will increase.

It will stay the same.

One cannot determine what will happen to the price of the stock in this situation.

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