Dividends, Stock Repurchase and Policy

1.When a firm pays a stated dollar dividend and adjusts the payment as earnings increase, its dividend policy can be called

1. 1. a target dividend-payout ratio policy.
2. 2. a low-regular-and-extra dividend policy.
3. 3. a regular dividend policy.
4. 4. a constant-payout-ratio dividend policy.

2.Tangshan Mining has 100,000 shares outstanding and just declared a 20% stock dividend. Before the announcement, the firm's shares were trading at $50.00 per share. After the stock dividend, the firm's shares should trade at ________ per share.

1. 1. remain unchanged
2. 2. $41.66
3. 3. $40.00
4. 4. $46.33

3.Stock repurchases may be made for all of the following reasons EXCEPT

1. 1. to enhance shareholder value by reducing the number of shares outstanding and thereby raising earnings per share.
2. 2. to help discourage an unfriendly takeover by reducing the number of publicly traded shares.
3. 3. to make shares available for stock option plans.
4. 4. to make shares available for stock dividends.

4.The problem with the regular dividend policy from the firm's perspective is that

1. 1. it increases the shareholders' uncertainty.
2. 2. it bores the shareholders.
3. 3. if the firm's earnings drop, so does the dividend payment.
4. 4. even when earnings are low, the company must pay a fixed dividend.

5.The purpose of a stock split is to

1. 1. reduce trading activity.
2. 2. increase the dividend.
3. 3. reduce the price of stock.
4. 4. issue additional shares.

6.At a firm's quarterly dividend meeting held on December 5, the directors declared a $1.50 per share cash dividend to be paid to the holders of record on Monday, January 1. Before the dividend was declared, the firm's accumulated retained earnings balance and cash balance were $1,280,000 and $30,000 respectively. The firm has 10,000 shares of common stock outstanding. On January 2, the cash, dividends payable, and retained earnings accounts had balances of

1. 1. $30,000, $15,000, and $1,280,000, respectively.
2. 2. $15,000, $0, and $1,280,000, respectively.
3. 3. $30,000, $0, and $1,265,000, respectively.
4. 4. $15,000, $0, and $1,265,000, respectively.

7.Stockholders dislike dividends that

1. 1. fluctuate with earnings.
2. 2. increase.
3. 3. are continuous.
4. 4. are fixed.

8.The shareholder receiving a stock dividend receives

1. 1. nothing of value.
2. 2. additional shares of common stock and cash.
3. 3. cash.
4. 4. a share of common stock of equal value to their existing shares of common stock.

9.A stock split has ________ effect on the firm's capital structure.

1. 1. a detrimental
2. 2. a measurable
3. 3. little
4. 4. no

10.The problem with a constant-payout-ratio dividend policy from the shareholder's perspective is that

1. 1. there is no informational content.
2. 2. even when earnings are low, the company must pay a fixed dividend.
3. 3. if the firm's earnings drop, so does the dividend payment.
4. 4. it bores the shareholders.

11.Tangshan Mining has 100,000 shares outstanding and just declared a 2-for-1 stock split. Before the announcement, the firm's shares were trading at $50.00 per share. After the stock dividend, the firm's shares should trade at ________ per share.

1. 1. none of these
2. 2. $100.00
3. 3. $25.00
4. 4. $50.00

12.At the quarterly meeting of Tangshan Mining Corporation, held on September 10th, the directors declared a $1.00 per share dividend for the firm's 100,000 shares of common stock outstanding. The net effect of declaring and paying this dividend would be to

1. 1. decrease total assets by $100,000 and decrease stockholders equity by $100,000.
2. 2. decrease total assets by $100,000 and increase stockholders equity by $100,000.
3. 3. increase total assets by $100,000 and decrease stockholders equity by $100,000.
4. 4. increase total assets by $100,000 and increase stockholders equity by $100,000.

13.The net effect of a stock repurchase is

1. 1. similar to a reverse stock split.
2. 2. similar to a stock split.
3. 3. similar to a cash dividend.
4. 4. similar to the payment of a stock dividend.

14.Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, the maximum rate of taxation on dividends received by shareholders was set at

1. 1. 18%.
2. 2. 25%.
3. 3. 20%.
4. 4. none of these.

15.The dividend policy must be formulated considering two basic objectives, namely

1. 1. maximizing shareholder wealth and providing for sufficient financing.
2. 2. maximizing shareholder wealth and delaying the tax liability of the stockholder.
3. 3. maintaining liquidity and minimizing the weighted average cost of capital.
4. 4. delaying the tax liability of the stockholder and information content.

16.Enhancement of shareholder value through stock repurchase is achieved by

1. 1. providing a temporary floor for the stock price, which may have been declining.
2. 2. all of these.
3. 3. sending a positive signal to investors in the marketplace that management believes that the stock is undervalued.
4. 4. reducing the number of shares outstanding and thereby raising earnings per share.

17.A ________ has an effect on the firm's share price similar to that of a ________.

1. 1. stock repurchase; stock split
2. 2. cash dividend; stock split
3. 3. stock dividend; stock split
4. 4. cash dividend; stock dividend

18.The payment of cash dividends to corporate stockholders is decided by the

1. 1. stockholders.
2. 2. management.
3. 3. board of directors.
4. 4. SEC.

19.Which type of dividend payment policy has the advantage that if the firm's earnings drop, dividends will still be maintained at a relatively constant level?

1. 1. Constant-payout-ratio policy.
2. 2. Regular dividend policy.
3. 3. Low-regular-and-extra dividend policy.
4. 4. none of these.

20.The purpose of a reverse stock split is to

1. 1. issue additional shares.
2. 2. reduce trading activity.
3. 3. increase the price of stock.
4. 4. increase the dividend.