Chap 017

Chapter 17 - Dividends and Dividend Policy
Chapter 17 Dividends and Dividend Policy

Multiple Choice Questions
1. Green Roof Motels has more cash on hand than its operations require. Thus the firm has decided to pay out some of its earnin!s in the form of cash to its shareholders. "hat are these payments to shareholders called# $. dividends %. stoc& payments C. repurchases D. payments-in-&ind '. stoc& splits
(. )ester*s +ro,en +oods -ust paid out ./.0/ a share to its shareholders. The cash for these payments came from a lar!e sale of assets not from any earnin!s of the firm. "hat are these payments to shareholders called# $. dividends %. distri1utions C. repurchases D. payments-in-&ind '. stoc& splits
2. $ ./.3/ quarterly cash payment paid 1y T.). 4ones 5 Co. to its shareholders in the normal course of 1usiness is called a6 $. repurchase. %. liquidatin! dividend. C. re!ular cash dividend. D. special dividend. '. e7tra cash dividend.
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8. The 1oard of directors of "ilson 9portin! 'quipment met this afternoon and passed a resolution to pay a cash dividend of ./.8( a share ne7t month. :n relation to this dividend today is referred to as ;hich one of the follo;in! dates# $. decision date %. date-of-record C. declaration date D. payment date '. e7-dividend date
0. The e7-dividend date is defined as <<<<< 1usiness day=s> 1efore the date of record. $. 1 %. ( C. 2 D. 0 '. 1/
3. "hich one of the follo;in! dates is used to determine the names of shareholders ;ho ;ill receive a dividend payment# $. e7-ri!hts date %. e7-dividend date C. date of record D. date of payment '. declaration date
7. Dividend payments are mailed on ;hich one of the follo;in! dates# $. e7-ri!hts date %. e7-dividend date C. date of record D. date of payment '. declaration date
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?. "hich one of the follo;in! refers to the a1ility of shareholders to undo a firm*s dividend policy and create an alternative dividend policy 1y reinvestin! dividends or sellin! shares of stoc&# $. perfect foresi!ht model %. personali,ation C. recapitali,ation D. offsettin! levera!e '. homemade dividend policy
@. "hat is the information content effect# $. any type of ne; information that causes a firm to cease payin! dividends %. any ne;s announcement that ;as anticipated and thus produces no reaction from investors C. the primary contri1utin! data that helps directors determine the amount of a particular dividend payment D. any type of reaction from a shareholder in response to a ne;s announcement related to the stoc& issuer '. the financial mar&et*s reaction to a chan!e in the amount of a firm*s dividend
1/. The common stoc& of Pierson 'nterprises has historically had a hi!h dividend yield and is e7pected to continue to do so. $s a result the ma-ority of its shareholders are individuals and entities that are see&in! a re!ular source of cash income. Most of these shareholders pay either no ta7es or a relatively lo; amount of ta7es. The fact that most of these shareholders have similar characteristics is referred to 1y ;hich one of the follo;in! terms# $. information content effect %. clientele effect C. efficient mar&ets hypothesis D. distri1ution effect '. mar&et reaction effect
11. A4 Corporation has e7cess cash and has opted to 1uy some of its shares of outstandin! common stoc&. "hat is this process of 1uyin! called# $. stoc& dividend %. stoc& split C. stoc& repurchase D. stoc& recap '. stoc& repeal
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1(. "hich one of the follo;in! involves a payment in shares 1y a stoc& issuer that increases the num1er of shares a shareholder o;ns 1ut also decreases the value per share# $. cash dividend %. stoc& dividend C. stoc& repurchase D. stoc& split '. reverse stoc& split
12. "hich one of the follo;in! does not affect the total equity of a firm 1ut does increase the num1er of shares outstandin!# $. special dividend %. stoc& split C. share repurchase D. ri!hts offer '. liquidatin! dividend
18. %ell "eather Mar&ets has recently sold for as little as .? a share and as much as .10 a share. The difference 1et;een these t;o prices is referred to as the6 $. price variance. %. 1id-as& spread. C. tradin! ran!e. D. openin! price. '. closin! price.
10. $ reverse stoc& split is defined as6 $. an increase in the num1er of shares outstandin! that does not affect o;ners* equity. %. a firm 1uyin! 1ac& e7istin! shares of its stoc& on the open mar&et. C. a firm sellin! ne; shares of stoc& on the open mar&et. D. a decrease in the num1er of shares outstandin! that does not affect o;ner*s equity. '. a decrease in 1oth the num1er of shares outstandin! and the price per share.
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13. "hich one of the follo;in! statements related to cash dividends is correct# $. '7tra cash dividends cannot 1e repeated in the future. %. $ dividend is never a lia1ility until it has 1een declared. C. :f a firm has paid re!ular quarterly dividends for at least five consecutive years it is le!ally o1li!ated to continue doin! so. D. Re!ular cash dividends reduce paid-in capital. '. The dividend yield e7presses the annual dividend as a percenta!e of net income.
17. %illin!sley Bnited declared a ./.(/ a share dividend on Thursday Ccto1er 13. The dividend ;ill 1e paid on Monday Dovem1er 1/ to shareholders of record on +riday Ccto1er 21. "hich one of the follo;in! is the e7-dividend date# $. Tuesday Ccto1er (? %. "ednesday Ccto1er (@ C. Thursday Ccto1er 2/ D. "ednesday Dovem1er 0 '. Thursday Dovem1er 3
1?. Taylor*s Tools declared a ./.8? a share dividend on +riday March 7. The dividend ;ill 1e paid on Monday $pril 7. The e7-dividend date is Tuesday March 1?. "hat is the record date# $. +riday March 18 %. Monday March 17 C. "ednesday March 1@ D. Thursday March (/ '. +riday March (1
1@. The last date on ;hich you can purchase shares of stoc& and still receive the dividend is the date ;hich is <<<<< 1usiness days prior to the date of record. $. 1 %. ( C. 2 D. 8 '. 0
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(/. Eate purchased 0// shares of +ast Deliveries stoc& on "ednesday 4uly 7th. Ted purchased 1// shares of +ast Deliveries stoc& on Thursday 4uly ?th. +ast Deliveries declared a dividend on 4une (/th to shareholders of record on 4uly 1(th and paya1le on $u!ust 1st. "hich one of the follo;in! statements concernin! the dividend paid on $u!ust 1st is correct !iven this information# $. Deither Eate nor Ted is entitled to the dividend. %. Eate is entitled to the dividend 1ut Ted is not. C. Ted is entitled to the dividend 1ut Eate is not. D. %oth Ted and Eate are entitled to the dividend. '. %oth Ted and Eate are entitled to one-half of the dividend amount.
(1. $ll else equal the mar&et value of a stoc& ;ill tend to decrease 1y rou!hly the afterta7 value of the dividend on the6 $. dividend declaration date. %. e7-dividend date. C. date of record. D. date of payment. '. day after the date of payment.
((. "hich one of the follo;in! statements related to dividend policy is correct# $. The primary question related to dividend policy is ;hether or not a firm should ever pay a dividend. %. %oth dividends and dividend policy are irrelevant. C. Dividend policy focuses on the timin! of dividend payments. D. Aomemade dividends increase the importance of a firm*s dividend policy decisions. '. "hether or not a firm ever pays a dividend is irrelevant to equity valuation.
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(2. $utomatic dividend reinvestment plans6 :. require that stoc&holders reinvest all of the dividends to ;hich they are entitled. ::. sometimes !rant shareholders the privile!e of purchasin! additional shares at a discounted price. :::. help shareholders create their o;n homemade dividend policies. :F. help ma&e corporate dividend policies irrelevant to individual stoc&holders. $. :: only %. ::: only C. :: and ::: only D. :: ::: and :F only '. : :: ::: and :F
(8. "hich of the follo;in! tends to increase the a1ility of a shareholder to create his or her o;n homemade dividend policy# :. lo; ta7es on capital !ains ::. dividend reinvestment plans :::. lar!e holdin!s of shares :F. lo; cost equity purchases $. :: only %. :: and ::: only C. : :: and ::: only D. :: ::: and :F only '. : :: ::: and :F
(0. "hich one of the follo;in! favors a lo; dividend policy# $. the ta7 on capital !ains is deferred until the !ain is reali,ed %. fe; if any positive net present value pro-ects are availa1le to a firm C. a ma-ority of the shareholders has a lo; relevant ta7 rate D. a ma-ority of the shareholders has 1etter investment opportunities ;ith similar ris&s '. corporate ta7 rates e7ceed personal ta7 rates
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(3. The fact that flotation costs can 1e si!nificant is an ar!ument for6 $. a firm to issue lar!er dividends than its closest competitors. %. a firm to maintain a constant dividend policy even if it frequently has to issue ne; C. shares. D. maintainin! a constant dividend policy even ;hen profits decline si!nificantly. '. maintainin! a hi!h dividend policy. +. maintainin! a lo; dividend policy and rarely issuin! e7tra dividends.
(7. "hich of the follo;in! tend to &eep dividends lo;# :. shareholders desirin! current income ::. terms contained in 1ond indenture a!reements :::. the desire to maintain constant dividends over time :F. flotation costs $. :: and ::: only %. : and :F only C. :: ::: and :F only D. : :: and ::: only '. : :: ::: and :F
(?. "hich of the follo;in! shareholders tend to favor a hi!h dividend policy# :. retired individuals ::. endo;ment funds :::. corporate investors :F. investors ;ith hi!h dividend ta7 rates 1ut lo; capital !ains ta7 rates $. : and ::: only %. :: and :F only C. : :: and ::: only D. :: ::: and :F only '. : :: ::: and :F
(@. $n investor is more li&ely to prefer a hi!h dividend payout if a firm6 $. has hi!h flotation costs. %. has fe; if any positive net present value pro-ects. C. has lo;er ta7 rates than the investor. D. has a stoc& price that is increasin! rapidly. '. offers su1stantial !ains on its equities ;hich are ta7ed at a favora1le rate.
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2/. The information content of a dividend increase !enerally si!nals that6 $. the firm has a one-time surplus of cash. %. the firm has fe; if any net present value pro-ects to pursue. C. mana!ement 1elieves earnin!s !ro;th ;ill 1e stron! !oin! for;ard. D. the firm has more cash than it needs due to a decline in future orders. '. dividends thereafter ;ill 1e lo;er.
21. 9.). Moffatt :nc. has paid a quarterly dividend of .1.(/ per share for the last ten quarters. "hich one of the follo;in! is most apt to cause the firm to reduce the amount of its ne7t dividend payment# $. decrease in the ne7t quarter*s revenue %. decrease in the ne7t quarter*s net income C. loss of a ma-or customer ;hich lo;ers the firm*s outloo& for the ne7t fe; years D. ma-or lump sum cash outflo; ne7t month to settle a class action product lia1ility la;suit on a product that is no lon!er produced '. decrease in the num1er of ne; pro-ects under consideration as compared to last year
2(. The dividend mar&et is in equili1rium ;hen6 $. all firms adopt a lo; dividend policy. %. half of the firms adopt a lo; dividend policy and half adopt a hi!h dividend policy. C. all clienteles are satisfied. D. dividends remain constant and no special dividends are declared. '. the total amount of the annual dividends is equal to the net income for the year.
22. "hich one of the follo;in! statements related to stoc& repurchases is correct# $. $n open mar&et stoc& repurchase increases the total ;ealth of a shareholder if you i!nore ta7es costs and mar&et imperfections. %. Tar!eted repurchases must 1e offered to all shareholders 1ut can 1e done in steps such that only a portion of the shareholders have the option to sell at any one point in time. C. "hen a firm ;ishes to repurchase shares in the open mar&et it ;ill do so in a special tradin! session that is set up 1y the 9'C. D. $ firm may spend more cash over the course of a year on stoc& repurchases than it does on cash dividends. '. Tender offer prices must 1e set equal to the openin! mar&et price on the day the tender offer is announced.
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28. "hich one of the follo;in! statements related to stoc& repurchases is correct# $. B.9. industrial firms have increased their stoc& repurchases every year for each of the past t;enty years. %. $ stoc& repurchase can 1e used as a means for incum1ent officers to retain control of a firm. C. $ tender offer indicates that a firm is ;illin! and a1le to purchase ho; ever many shares the current shareholders ;ish to sell. D. $ll stoc& repurchases must 1e identified as such to the sellin! party. '. 9toc& repurchases can 1e a relatively ta7-efficient method of distri1utin! cash to shareholders.
20. $ stoc& repurchase pro!ram6 $. requires all shareholders to sell a fraction of their shares. %. is preferred over a hi!h-dividend pro!ram only 1y ta7-e7empt shareholders. C. decreases 1oth the num1er of shares outstandin! and the mar&et price per share. D. has no effect on a firm*s financial statements. '. is essentially the same as a cash dividend pro!ram provided there are no ta7es or other costs.
23. "hich one of the follo;in! is a result of a stoc& repurchase# $. increase in the num1er of shares outstandin! %. increase in the mar&et price per share C. increase in the total equity of the repurchasin! firm D. decrease in 'P9 '. P' ratio equal to that resultin! from a compara1le cash dividend
27. :f you i!nore ta7es and costs a stoc& repurchase ;ill6 :. reduce the total assets of a firm. ::. decrease the earnin!s per share. :::. reduce the P' ratio more so than an equivalent stoc& dividend. :F. reduce the total equity of a firm. $. : and ::: only %. : and :F only C. :: and :F only D. : ::: and :F only '. :: ::: and :F only
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2?. 9teve o;ns 2 /// shares of DCP :nc. stoc& ;hich he purchased si7 years a!o at a price of .(( a share. Today these shares are sellin! for .3? each. $ssume the current ta7 la;s are such that 9teve is su1-ect to a ta7 rate of (0 percent on 1oth his dividend income and his capital !ains. +rom 9teve*s point of vie; a stoc& repurchase today6 =:!nore costs> $. is equivalent to a cash dividend in all respects. %. is more desira1le than a cash dividend in respect to ta7es. C. ;ill result in the same ta7 lia1ility as an equivalent cash dividend. D. is more hi!hly ta7ed than a cash dividend. '. is totally unaccepta1le to him.
2@. "hich one of the follo;in! statements correctly applies to B.9. industrial firms 1ased on the period of 1@?8 -(//8# $. 'arnin!s !ro;th rates tend to la! dividend !ro;th rates. %. Dividends tend to fluctuate si!nificantly from quarter to quarter. C. The percenta!e of these firms payin! dividends in (//8 ;as hi!her than in 1@?8. D. The total amount of dividends paid 1y these firms ;as !reater in (//8 than in 1@?8. '. Don-dividend payin! firms in 1@?8 ;ere more apt to commence payin! re!ular dividends than to implement a stoc& repurchase pro!ram.
8/. "hich one of the follo;in! statements appears to 1e supported 1y the current dividend policies of B.9. industrial firms# $. +irms tend to increase the dividend amount per share even ;hen it*s unclear if the increase can 1e maintained. %. :nvestors no lon!er react to chan!es either up or do;n in dividends. C. De;er hi!h-!ro;th firms tend to pay lar!er dividends than mature firms. D. Dividends are still vie;ed 1y shareholders as a si!nal of a firm*s future outloo&. '. Mana!ers are no lon!er hesitant to lo;er dividend payments.
81. "hich one of the follo;in! statements is correct# $. +irms prefer to cut dividend payments rather than 1orro; money to fund a short-term cash need. %. 9hare repurchases tend to increase a!ency costs. C. Maintainin! a steady dividend is a &ey !oal of most dividend-payin! firms. D. Ta7 rates are the &ey factor in determinin! a firm*s dividend policy. '. 9toc& prices tend to i!nore e7pected chan!es in dividend payments.
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8(. "hich of the follo;in! 1alance sheet accounts are affected 1y a small stoc& dividend# :. cash ::. common stoc& :::. retained earnin!s :F. capital in e7cess of par value $. : and ::: only %. :: and ::: only C. :: and :F only D. :: ::: and :F only '. : :: ::: and :F
82. $ small stoc& dividend is defined as a stoc& dividend of less than <<<<< percent. $. 1/ to 10 %. 10 to (/ C. (/ to (0 D. (0 to 2/ '. 2/ to 20
88. "hich one of the follo;in! is a result of a small stoc& dividend# $. increase in retained earnin!s %. decrease in total o;ner*s equity C. decrease in cash D. decrease in capital in e7cess of par value '. increase in common stoc&
80. "hich of the follo;in! account 1alance chan!es occur as a result of a lar!e stoc& dividend# :. increase in common stoc& ::. decrease in capital in e7cess of par :::. increase in capital in e7cess of par :F. decrease in retained earnin!s $. : and ::: only %. :: and :F only C. : and :F only D. :: and ::: only '. : ::: and :F only
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83. Revol-Tech is a technolo!y firm ;ith e7cellent !ro;th prospects. The firm ;ishes to do somethin! to ac&no;led!e the loyalty of the shareholders 1ut needs all of its availa1le cash to fund the firm*s rapid !ro;th. The mar&et price of the stoc& is currently tradin! at the upper end of its preferred tradin! ran!e. The firm is most apt to consider ;hich one of the follo;in! in this situation# $. liquidatin! dividend %. stoc& split C. reverse stoc& split D. small stoc& dividend '. special cash dividend
87. "hich t;o of the follo;in! are the 1est -ustifications for a reverse stoc& split# :. com1ine a reverse stoc& split ;ith a stoc& repurchase to ena1le a firm to !o dar& ::. increase the respecta1ility of the stoc& :::. avoid delistin! :F. reduce transaction costs for shareholders $. : and :: only %. : and ::: only C. :: and ::: only D. :: and :F only '. ::: and :F only
8?. $ stoc& split6 $. increases the total value of the common stoc& account. %. decreases the value of the retained earnin!s account. C. increases the par value per share. D. increases the value of the capital in e7cess of par account. '. decreases the mar&et value per share.
8@. 9toc& splits can 1e used to6 $. ad-ust the mar&et price of a stoc& such that it falls ;ithin a preferred tradin! ran!e. %. decrease the e7cess cash held 1y a firm there1y lo;erin! a!ency costs. C. increase 1oth the num1er of shares outstandin! and the mar&et price per share. D. increase the total equity of a firm. '. ad-ust the de1t-equity ratio.
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0/. "hich one of the follo;in! is a direct result of a (-for-1 stoc& split# $. a 1// percent increase in the num1er of shareholders %. a 1// percent increase in the common stoc& account 1alance C. a 1// percent decrease in the stoc& price D. a 0/ percent increase in the num1er of shares outstandin! '. a 0/ percent decrease in the par value per share
01. 9li!o Minerals stoc& is currently tradin! at .3 a share. The firm 1elieves its primary clientele can afford to spend 1et;een .1 0// and .( /// to purchase a round lot of 1// shares. The firm should consider a6 $. reverse stoc& split. %. liquidatin! dividend. C. stoc& dividend. D. stoc& split. '. special dividend.
0(. $ one-for-four reverse stoc& split ;ill6 $. increase the par value 1y (0 percent. %. increase the num1er of shares outstandin! 1y 8// percent. C. increase the mar&et value 1ut not affect the par value per share. D. increase a .1 par value to .8. '. increase a .1 par value to .0.
02. $ firm ;ants to maintain a minimum stoc& price of .10 a share. Due to a recent mar&et do;nturn the stoc& is currently sellin! for .3 a share. The firm should consider a6 $. 2-for-1 stoc& split. %. 8-for-1 stoc& split. C. 1-for-2 reverse stoc& split. D. 1-for-8 reverse stoc& split. '. 1-for-0 reverse stoc& split.
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08. Plyler Ca1inets declared a dividend of .1.(/ a share on May 10 to holders of record on Monday 4une 1. The dividend is paya1le on 4une 10. 9ara purchased 0// shares of Plyler Ca1inets stoc& on +riday May (@. Ao; much dividend income ;ill she receive on 4une 10 from Plyler Ca1inets# $. ./ %. ./.?/ C. .1.3/ D. .13/.// '. .2(/.//
00. 9teve purchased 2// shares of $lpha %eta stoc& on May @. Cn May 10 he purchased another (// shares and then on May (( he purchased a final 8// shares of $lpha %eta stoc&. The company declared a dividend of .1.3/ a share on $pril 2/ to holders of record on +riday May (2. The dividend is paya1le on 4une (. Ao; much dividend income ;ill 9teve receive on 4une ( from $lpha %eta# $. ./ %. .8?/ C. .?// D. .1 (// '. .1 88/
03. Cn 4uly 7 you purchased 0// shares of "a!oneer :nc. stoc& for .(1 a share. Cn $u!ust 1 you sold (// shares of this stoc& for .(? a share. Gou sold an additional 1// shares on $u!ust 17 at a price of .(0 a share. The company declared a ./.@0 per share dividend on $u!ust 8 to holders of record as of "ednesday $u!ust 10. This dividend is paya1le on 9eptem1er 1. Ao; much dividend income ;ill you receive on 9eptem1er 1 as a result of your o;nership of "a!oneer stoc&# $. ./ %. .1@/ C. .(?0 D. .23/ '. .870
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07. "e1ster Bnited is payin! a .1.1/ per share dividend today. There are 20/ /// shares outstandin! ;ith a mar&et price of .(2 per share. :!nore ta7es. %efore the dividend the company had earnin!s per share of .1.78. $s a result of this dividend the6 $. retained earnin!s ;ill decrease 1y .20/ ///. %. retained earnin!s ;ill increase 1y .2?0 ///. C. total firm value ;ill not chan!e. D. earnin!s per share ;ill increase to .(.?8. '. price-earnin!s ratio ;ill 1e 1(.0@.
0?. Gou o;n ( (// shares of Deltona Aard;are. The company has stated that it plans on issuin! a dividend of ./.8( a share at the end of this year and then issuin! a final liquidatin! dividend of .(.@/ a share at the end of ne7t year. Gour required rate of return on this security is 13 percent. :!norin! ta7es ;hat is the value of one share of this stoc& to you today# $. .(.2/ %. .(.82 C. .(.0( D. .(.@( '. .2.2(
0@. $l o;ns ?// shares of The Good )ife Co. The company recently issued a statement that it ;ill pay a dividend per share of ./.00 this year and a ./.3/ per share dividend ne7t year. $l does not ;ant any dividend income this year 1ut does ;ant as much dividend income as possi1le ne7t year. $l earns ?.0 percent on his investments. :!norin! ta7es ;hat ;ill $l*s total homemade dividend 1e ne7t year# $. .@1/.(/ %. .@(/.// C. .@2/.0/ D. .@81.?/ '. .@07.8/
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3/. 4ennin!ston Mills has a mar&et value equal to its 1oo& value. Currently the firm has e7cess cash of .1 (// other assets of .0 ?// and equity valued at .2 70/. The firm has (0/ shares of stoc& outstandin! and net income of .8(/. "hat ;ill the ne; earnin!s per share 1e if the firm uses (0 percent of its e7cess cash to complete a stoc& repurchase# $. .1.?2 %. .1.?@ C. .1.@3 D. .(.// '. .(./?
31. %lasco*s has a mar&et value equal to its 1oo& value. Currently the firm has e7cess cash of .1 22( other assets of .11 378 and equity of .7 (//. The firm has 3// shares of stoc& outstandin! and net income of .?2?. %lasco*s has decided to spend one-third of its e7cess cash on a share repurchase pro!ram. Ao; many shares of stoc& ;ill 1e outstandin! after the stoc& repurchase is completed# $. 027 shares %. 00/ shares C. 032 shares D. 07? shares '. 0?8 shares
3(. Tuc&er*s Dational Distri1utin! has a current mar&et value of equity of .1/ 330. Currently the firm has e7cess cash of .38/ total assets of .(( 8// net income of .2 (1/ and 0// shares of stoc& outstandin!. Tuc&er*s is !oin! to use all of its e7cess cash to repurchase shares of stoc&. "hat ;ill the stoc& price per share 1e after the stoc& repurchase is completed# $. .(/.?7 %. .(/.@8 C. .(1./3 D. .(1.22 '. .(1.8(
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32. The equity of %loomin! Roses has a total mar&et value of .13 ///. Currently the firm has e7cess cash of .1 (// and net income of .10 8//. There are 70/ shares of stoc& outstandin!. "hat ;ill 1e the percenta!e chan!e in the stoc& price per share if the firm pays out all of its e7cess cash as a cash dividend# $. -@.8/ percent %. -7.0/ percent C. -0.?/ percent D. -(.70 percent '. /.// percent
38. Dela;are Trust has 80/ shares of common stoc& outstandin! at a mar&et price per share of .(7. Currently the firm has e7cess cash of .8// total assets of .(? @// and net income of .1 2(/. The firm has decided to pay out all of its e7cess cash as a cash dividend. "hat ;ill the earnin!s per share 1e after this dividend is paid# $. .(.3@ %. .(.?3 C. .(.@2 D. .2./7 '. .2.(8
30. 4osh*s :nc. has 7 /// shares of stoc& outstandin! ;ith a par value of .1.// per share and a mar&et value of .2( a share. The 1alance sheet sho;s .73 /// in the capital in e7cess of par account .7 /// in the common stoc& account and .38 ?// in the retained earnin!s account. The firm -ust announced a 1/ percent stoc& dividend. "hat is the value of the capital in e7cess of par account after the dividend# $. .0/ 3// %. .08 2// C. .73 /// D. .@7 7// '. .1/1 8//
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33. Randall*s :nc. has (/ /// shares of stoc& outstandin! ;ith a par value of .1.// per share. The mar&et value is .1( per share. The 1alance sheet sho;s .8( /// in the capital in e7cess of par account .(/ /// in the common stoc& account and .0/ 0// in the retained earnin!s account. The firm -ust announced a 0 percent =small> stoc& dividend. "hat ;ill the 1alance in the retained earnin!s account 1e after the dividend# $. .2? 0// %. .2@ 0// C. .0/ 0// D. .31 0// '. .3( 0//
37. 9outhern +ried Chic&en has ? /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et value of .28 per share. The 1alance sheet sho;s .2@ /// in the capital in e7cess of par account .? /// in the common stoc& account and .10( /// in the retained earnin!s account. The firm -ust announced a 0 percent stoc& dividend. "hat ;ill total o;ners* equity 1e after the dividend# $. .1?0 ?// %. .1@3 /// C. .1@@ /// D. .(/3 ?// '. .(1( (//
3?. Fal*s Marina 9upply has 2 0// shares of stoc& outstandin! ;ith a par value of .1.// per share and a mar&et value of .1@ per share. The 1alance sheet sho;s .2 0// in the common stoc& account .(8 /// in the capital in e7cess of par account and .21 8// in the retained earnin!s account. The firm -ust announced a 1// percent stoc& dividend. "hat is the value of the capital in e7cess of par account after the dividend# $. ./ %. .(/ 0// C. .(8 /// D. .00 0// '. .?7 ///
17-1@
3@. Eurt*s Mar&et has ? /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et value of .12 per share. The 1alance sheet sho;s .? /// in the common stoc& account .(3 /// in the capital in e7cess of par account and .2( 7// in the retained earnin!s account. The firm -ust announced a 1// percent stoc& dividend. "hat ;ill 1e the 1alance in the retained earnin!s account after this dividend# $. ./ %. .(8 7// C. .2( 7// D. .8/ 7// '. .1(? 7//
7/. The Tannin! %ed has 1/ /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et value of .? per share. The 1alance sheet sho;s .1/ /// in the common stoc& account .3/ /// in the capital in e7cess of par account and .@8 2// in the retained earnin!s account. The firm -ust announced a 1// percent stoc& dividend. "hat ;ill 1e the value of the common stoc& account after the dividend# $. .0 /// %. .1/ /// C. .11 /// D. .10 /// '. .(/ ///
71. Fer1al Communications :nc. has 18 /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et value of .83 per share. The firm -ust announced a 1// percent stoc& dividend. "hat is the mar&et value per share after the dividend# $. .(2.// %. .28.0/ C. .83.// D. .3@.// '. .@(.//
17-(/
7(. Della*s Pool Aalls has 1( /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et price of .2@ a share. The firm -ust announced a 8-for-2 stoc& split. Ao; many shares of stoc& ;ill 1e outstandin! after the split# $. @ /// shares %. 1/ /// shares C. 1( /// shares D. 18 3// shares '. 13 /// shares
72. $lfon,o*s :talian Aouse has (0 /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et price of .23 a share. The firm -ust announced a 0-for-2 stoc& split. "hat ;ill the mar&et price per share 1e after the split# $. .(1.3/ %. .(8.(/ C. .23.// D. .08.// '. .3/.//
78. 9outh 9hore )imited has (1 /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et price of .7.0/ a share. The firm -ust announced a 0-for-( stoc& split. "hat ;ill the par value of the stoc& 1e after the split# $. ./.8/ %. ./.?/ C. .1.// D. .1.8/ '. .1.3/
70. Mario*s has 1? /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et price of .8 a share. The 1alance sheet sho;s .1? /// in the common stoc& account .223 /// in the paid in surplus account and .38 /// in the retained earnin!s account. The firm -ust announced a 0-for-1 stoc& split. "hat ;ill the paid in surplus account value 1e after the split# $. .33 /// %. .223 /// C. .8(3 /// D. .08? /// '. .3/3 ///
17-(1
73. Pre,ario*s has (0 /// shares of stoc& outstandin! ;ith a par value of .1 per share. The current mar&et value of the firm is .?87 ///. Currently the retained earnin!s account 1alance is .8(? /// and the capital in e7cess of par value account 1alance is .1?7 ///. The company -ust announced a 2-for-1 stoc& split. "hat is the common stoc& account 1alance after the stoc& split# $. .? 222 %. .(0 /// C. .70 /// D. .77 222 '. .(2( ///
77. The Peanut 9hac& has 3 /// shares of stoc& outstandin! ;ith a par value of .1 per share. The current mar&et value of the firm is .180 3//. The company -ust announced a 2-for-( stoc& split. "hat ;ill the mar&et price per share 1e after the split# $. .1(.18 %. .13.1? C. .(8.(7 D. .(?.(/ '. .23.8/
7?. "estern Mountain "ater has 11 /// shares of stoc& outstandin! ;ith a par value of .1 per share. The current mar&et value of the firm is .120 ///. The 1alance sheet sho;s a capital in e7cess of par value account 1alance of .3? /// and retained earnin!s of .8@ ///. The company -ust announced a (-for-1 stoc& split. "hat ;ill the capital in e7cess of par value account 1alance 1e after the split# $. .80 222 %. .08 337 C. .3? /// D. .?3 337 '. .1/( ///
17-((
7@. The Peace River Corporation has 37 /// shares of stoc& outstandin! at a mar&et price of .8? a share. The company has -ust announced a 2-for-( stoc& split. Ao; many shares of stoc& ;ill 1e outstandin! after the split# $. 88 337 shares %. 08 222 shares C. ?@ 222 shares D. 1// 0// shares '. 1/? 333 shares
?/. Cooper %rands :nc. has 3? /// shares of stoc& outstandin! at a mar&et price of .32 a share. The par value is .1 per share. The company has -ust announced a 0-for-8 stoc& split. "hat ;ill the mar&et price per share 1e after the split# $. .0/.8/ %. .0?.(/ C. .3(.0/ D. .7?.70 '. .?(.0/
?1. The Minin! Co. has (/ /// shares of stoc& outstandin!. The current mar&et value of the firm is .2(? ///. The company has retained earnin!s of .(7 /// capital in e7cess of par value of .13/ /// and a common stoc& account value of .(/ ///. The company is plannin! a (-for-0 reverse stoc& split. "hat ;ill the par value per share 1e after the split# $. ./.10 %. ./.(/ C. .1.// D. .(.0/ '. .0.//
?(. 'ast Coast Marina has ((/ /// shares of stoc& outstandin!. The current mar&et value of the firm is .1?.@( million. The company has retained earnin!s of .2.? million paid in surplus of .3.7 million and a common stoc& account value of .((/ ///. The company is plannin! a 2-for-( stoc& split. "hat ;ill the mar&et price per share 1e after the split# $. .(?.37 %. .07.22 C. .33.37 D. .1/?.// '. .1(@.//
17-(2
?2. 4ean*s "arehouse has 13 /// shares of stoc& outstandin!. The current mar&et value of the firm is .73? ///. The company has retained earnin!s of .1(2 /// paid in surplus of .2(1 /// and a common stoc& account value of 13 ///. The company is plannin! a 0-for-2 stoc& split. "hat ;ill the retained earnin!s account value 1e after the split# $. .72 ?// %. .1(2 /// C. .102 3// D. .(/0 /// '. .(80 0//
?8. The common stoc& of Chec&ers :nc. is sellin! for .03 a share and the par value per share is .1. Currently the firm has a total mar&et value of .?1( ///. Ao; many shares of stoc& ;ill 1e outstandin! if the firm does a 2-for-( stoc& split# $. @ 337 shares %. 1( 0// shares C. 18 0// shares D. 17 70/ shares '. (1 70/ shares
?0. The common stoc& of Gillen 'ntertainment is sellin! for .7? a share. The par value per share is .1. Currently the firm has a total mar&et value of .@23 ///. Ao; many shares of stoc& ;ill 1e outstandin! if the firm does a 0-for-( stoc& split# $. 8 ?// shares %. @ 3// shares C. 10 /// shares D. 2/ /// shares '. 2( (// shares
?3. Purvis )a;n Products has 1? /// shares of stoc& outstandin! at a mar&et price of .0.0/ a share. "hat ;ill the mar&et price per share 1e if the company does a 1-for-8 reverse stoc& split# $. .1.2? %. .0.0/ C. .11.// D. .13.0/ '. .((.//
17-(8
?7. The Clive Fase has 03 /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et value of .11 a share. The company -ust announced a 2-for-8 reverse stoc& split. Currently you o;n 8// shares of this stoc&. "hat ;ill the total value of your shares 1e after the reverse stoc& split# $. .2 2// %. .8 8// C. .0 0// D. .0 ?37 '. .3 222
??. The Green +lorist has (? /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et value of .7 a share. The company -ust announced a (-for-0 reverse stoc& split. Currently you o;n 2// shares of this stoc&. Ao; many shares ;ill you o;n after the reverse stoc& split# $. 3/ shares %. 1(/ shares C. 8?/ shares D. 3// shares '. 70/ shares
?@. City Center Pharmacy has 11 0// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et value of .1/ a share. The company -ust announced a 2-for-7 reverse stoc& split. "hat ;ill the mar&et value per share 1e after the reverse stoc& split# $. .8.(@ %. .7.// C. .1/.// D. .(2.22 '. .(0.(1
17-(0

Essay Questions
@/. Gou are the C+C of a non-dividend payin! firm that currently has e7cess cash reserves. Gou are preparin! for an internal mana!ement meetin! ;here dividends are on the a!enda. Gou &no; that the C'C favors the commencement of a dividend pro!ram. Gou ho;ever oppose any dividend plan at this time. "rite a !ood ar!ument that you can use in the meetin! to support your position.
@1. '7plain the meanin! of the dividend clientele effect and ;hy it is important.
@(. 9toc& repurchase pro!rams appear to 1ecomin! more popular ;ith 1usiness firms. '7plain the appeal of these pro!rams as compared to that of cash dividend pro!rams from the stoc& issuer*s point of vie;.
@2. :dentify some real-;orld factors ;hich mi!ht ma&e it more difficult for an individual to effectively create a homemade dividend policy.
17-(3
@8. '7plain ho; cash dividends affect individual shareholders differently than an equal amount of funds spent on a repurchase.
@0. The Green +iddle has declared an .? per share dividend. 9uppose capital !ains are not ta7ed 1ut dividends are ta7ed at 10 percent. De; :R9 re!ulations require that ta7es 1e ;ithheld at the time the dividend is paid. Green +iddle stoc& sells for .71.0/ per share and the stoc& is a1out to !o e7-dividend. "hat ;ill the e7-dividend price 1e# $. .38.7/ %. .37.@/ C. .7?.2/ D. .7@.0/ '. .?(.(2
@3. The o;ners* equity accounts for %lues;ell :ndustries are sho;n here6
:f %lues;ell :ndustries declares a 1-for-0 reverse stoc& split there ;ill 1e <<<< shares outstandin! at a par value of <<<<< per share. $. 1 ?//H .1.// %. 1 ?//H .0.// C. @ ///H .0.// D. 80 ///H ./.(/ '. 80 ///H .1.//
17-(7
@7. The Turtle Cave currently has 13/ /// shares of stoc& outstandin! that sell for .3/ per share. $ssume no mar&et imperfections or ta7 effects e7ist. "hat ;ill the ne; share price 1e if the firm declares a 10 percent stoc& dividend# $. .8?.7( %. .0(.17 C. .3/.// D. .38.0/ '. .3@.//
@?. Glendale Pavin! currently has 1(/ /// shares of stoc& outstandin! that sell for .08 per share. $ssume no mar&et imperfections or ta7 effects e7ist. "hat ;ill the ne; share price 1e if the firm declares a 8/ percent stoc& dividend# $. .21.1( %. .2(./? C. .20.1@ D. .2?.07 '. .8/.//
@@. The 1alance sheet for $pple Pie Corp. is sho;n here in mar&et value terms. There are 8 /// shares of stoc& outstandin!.
The company has declared a dividend of .1.?/ per share. The stoc& !oes e7-dividend tomorro;. :!nore any ta7 effects. "hat ;ill the price of the stoc& 1e tomorro;# $. .1?.@/ %. .23.(/ C. .8@.@0 D. .0(.10 '. .71.?/
17-(?
1//. The 1alance sheet for $pple Pie Corp. is sho;n here in mar&et value terms. There are 0 /// shares of stoc& outstandin!.
The company has announced that it is !oin! to repurchase .8 20/ ;orth of stoc&. "hat ;ill the price of the stoc& 1e after this repurchase# $. .20.// %. .23.1@ C. .2@.(1 D. .8(.0/ '. .82.22
1/1. The mar&et value 1alance sheet for :n1o7 Manufacturin! is sho;n here. :n1o7 has declared a (2 percent stoc& dividend. The stoc& !oes e7-dividend tomorro; =the chronolo!y for a stoc& dividend is similar to that for a cash dividend>. There are 12 /// shares outstandin!. "hat is the e7-dividend stoc& price#
$. .(1.(1 %. .(2.01 C. .(0./3 D. .(3.?3 '. .(?.@(
17-(@
1/(. Gou o;n 1 /// shares of stoc& in $vondale Corporation. Gou ;ill receive an ?/-cent per share dividend in one year. :n t;o years $vondale ;ill pay a liquidatin! dividend of .8/ per share. The required return on $vondale stoc& is 18 percent. "hat ;ill your dividend income 1e this year if you use homemade dividends to create t;o equal annual dividend payments# $. .10 1?8 %. .10 @?/ C. .1? 337 D. .1@ 117 '. .(/ 8//
1/2. Gou o;n 1 /// shares of stoc& in $vondale Corporation. Gou ;ill receive a ./.?/ per share dividend in one year. :n t;o years $vondale ;ill pay a liquidatin! dividend of .20 per share. The required return on $vondale stoc& is 13 percent. Gou only ;ant .(// total in dividends in year one and accomplish this 1y usin! homemade dividends. "hat ;ill your total dividend amount 1e in year t;o# $. .17 @// %. .(/ 738 C. .20 3@3 D. .81 8/( '. .82 ?7?
1/8. %uilt Rite Corp. is evaluatin! an e7tra dividend versus a share repurchase. :n either case .0 0// ;ould 1e spent. Current earnin!s are ./.?/ per share and the stoc& currently sells for .22 per share. There are (0/ shares outstandin!. :!nore ta7es and other imperfections. Gou o;n one share of stoc& in this company. :f the company issues the dividend your total investment ;ill 1e ;orth <<<< as compared to <<<< if the company opts for a share repurchase. $. .11H .11 %. .11H .(( C. .11H .22 D. .(2H .22 '. .22H .22
17-2/
Chapter 17 Dividends and Dividend Policy $ns;er Eey
1. Green Roof Motels has more cash on hand than its operations require. Thus the firm has decided to pay out some of its earnin!s in the form of cash to its shareholders. "hat are these payments to shareholders called# A. dividends %. stoc& payments C. repurchases D. payments-in-&ind '. stoc& splits Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$" Section: "#%" &o'ic: Di!idend
(. )ester*s +ro,en +oods -ust paid out ./.0/ a share to its shareholders. The cash for these payments came from a lar!e sale of assets not from any earnin!s of the firm. "hat are these payments to shareholders called# $. dividends B. distri1utions C. repurchases D. payments-in-&ind '. stoc& splits Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$" Section: "#%" &o'ic: Distribution
17-21
2. $ ./.3/ quarterly cash payment paid 1y T.). 4ones 5 Co. to its shareholders in the normal course of 1usiness is called a6 $. repurchase. %. liquidatin! dividend. C. re!ular cash dividend. D. special dividend. '. e7tra cash dividend. Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$" Section: "#%" &o'ic: (egular cas) di!idend
8. The 1oard of directors of "ilson 9portin! 'quipment met this afternoon and passed a resolution to pay a cash dividend of ./.8( a share ne7t month. :n relation to this dividend today is referred to as ;hich one of the follo;in! dates# $. decision date %. date-of-record C. declaration date D. payment date '. e7-dividend date Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$" Section: "#%" &o'ic: Declaration date
17-2(
0. The e7-dividend date is defined as <<<<< 1usiness day=s> 1efore the date of record. $. 1 B. ( C. 2 D. 0 '. 1/ Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$" Section: "#%" &o'ic: *+$di!idend date
3. "hich one of the follo;in! dates is used to determine the names of shareholders ;ho ;ill receive a dividend payment# $. e7-ri!hts date %. e7-dividend date C. date of record D. date of payment '. declaration date Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$" Section: "#%" &o'ic: Date of record
17-22
7. Dividend payments are mailed on ;hich one of the follo;in! dates# $. e7-ri!hts date %. e7-dividend date C. date of record D. date of payment '. declaration date Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$" Section: "#%" &o'ic: Date of 'ayment
?. "hich one of the follo;in! refers to the a1ility of shareholders to undo a firm*s dividend policy and create an alternative dividend policy 1y reinvestin! dividends or sellin! shares of stoc&# $. perfect foresi!ht model %. personali,ation C. recapitali,ation D. offsettin! levera!e E. homemade dividend policy Refer to section 17.(
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$, Section: "#%, &o'ic: -omemade di!idend 'olicy
17-28
@. "hat is the information content effect# $. any type of ne; information that causes a firm to cease payin! dividends %. any ne;s announcement that ;as anticipated and thus produces no reaction from investors C. the primary contri1utin! data that helps directors determine the amount of a particular dividend payment D. any type of reaction from a shareholder in response to a ne;s announcement related to the stoc& issuer E. the financial mar&et*s reaction to a chan!e in the amount of a firm*s dividend Refer to section 17.0
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$, Section: "#%. &o'ic: /nformation content effect
1/. The common stoc& of Pierson 'nterprises has historically had a hi!h dividend yield and is e7pected to continue to do so. $s a result the ma-ority of its shareholders are individuals and entities that are see&in! a re!ular source of cash income. Most of these shareholders pay either no ta7es or a relatively lo; amount of ta7es. The fact that most of these shareholders have similar characteristics is referred to 1y ;hich one of the follo;in! terms# $. information content effect B. clientele effect C. efficient mar&ets hypothesis D. distri1ution effect '. mar&et reaction effect Refer to section 17.0
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$, Section: "#%. &o'ic: Clientele effect
17-20
11. A4 Corporation has e7cess cash and has opted to 1uy some of its shares of outstandin! common stoc&. "hat is this process of 1uyin! called# $. stoc& dividend %. stoc& split C. stoc& repurchase D. stoc& recap '. stoc& repeal Refer to section 17.3
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$0 Section: "#%1 &o'ic: Stoc2 re'urc)ase
1(. "hich one of the follo;in! involves a payment in shares 1y a stoc& issuer that increases the num1er of shares a shareholder o;ns 1ut also decreases the value per share# $. cash dividend B. stoc& dividend C. stoc& repurchase D. stoc& split '. reverse stoc& split Refer to section 17.?
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Stoc2 di!idend
17-23
12. "hich one of the follo;in! does not affect the total equity of a firm 1ut does increase the num1er of shares outstandin!# $. special dividend B. stoc& split C. share repurchase D. ri!hts offer '. liquidatin! dividend Refer to section 17.?
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Stoc2 s'lit
18. %ell "eather Mar&ets has recently sold for as little as .? a share and as much as .10 a share. The difference 1et;een these t;o prices is referred to as the6 $. price variance. %. 1id-as& spread. C. tradin! ran!e. D. openin! price. '. closin! price. Refer to section 17.?
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: &rading range
17-27
10. $ reverse stoc& split is defined as6 $. an increase in the num1er of shares outstandin! that does not affect o;ners* equity. %. a firm 1uyin! 1ac& e7istin! shares of its stoc& on the open mar&et. C. a firm sellin! ne; shares of stoc& on the open mar&et. D. a decrease in the num1er of shares outstandin! that does not affect o;ner*s equity. '. a decrease in 1oth the num1er of shares outstandin! and the price per share. Refer to section 17.?
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: (e!erse stoc2 s'lit
13. "hich one of the follo;in! statements related to cash dividends is correct# $. '7tra cash dividends cannot 1e repeated in the future. B. $ dividend is never a lia1ility until it has 1een declared. C. :f a firm has paid re!ular quarterly dividends for at least five consecutive years it is le!ally o1li!ated to continue doin! so. D. Re!ular cash dividends reduce paid-in capital. '. The dividend yield e7presses the annual dividend as a percenta!e of net income. Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$" Section: "#%" &o'ic: Cas) di!idend
17-2?
17. %illin!sley Bnited declared a ./.(/ a share dividend on Thursday Ccto1er 13. The dividend ;ill 1e paid on Monday Dovem1er 1/ to shareholders of record on +riday Ccto1er 21. "hich one of the follo;in! is the e7-dividend date# $. Tuesday Ccto1er (? B. "ednesday Ccto1er (@ C. Thursday Ccto1er 2/ D. "ednesday Dovem1er 0 '. Thursday Dovem1er 3 Refer to section 17.1
AACSB: N/A Bloom's: Com're)ension Difficulty: Basic Learning Ob ecti!e: "#$" Section: "#%" &o'ic: *+$di!idend date
1?. Taylor*s Tools declared a ./.8? a share dividend on +riday March 7. The dividend ;ill 1e paid on Monday $pril 7. The e7-dividend date is Tuesday March 1?. "hat is the record date# $. +riday March 18 %. Monday March 17 C. "ednesday March 1@ D. Thursday March (/ '. +riday March (1 Refer to section 17.1
AACSB: N/A Bloom's: Com're)ension Difficulty: Basic Learning Ob ecti!e: "#$" Section: "#%" &o'ic: (ecord date
17-2@
1@. The last date on ;hich you can purchase shares of stoc& and still receive the dividend is the date ;hich is <<<<< 1usiness days prior to the date of record. $. 1 %. ( C. 2 D. 8 '. 0 Refer to section 17.1
(/. Eate purchased 0// shares of +ast Deliveries stoc& on "ednesday 4uly 7th. Ted purchased 1// shares of +ast Deliveries stoc& on Thursday 4uly ?th. +ast Deliveries declared a dividend on 4une (/th to shareholders of record on 4uly 1(th and paya1le on $u!ust 1st. "hich one of the follo;in! statements concernin! the dividend paid on $u!ust 1st is correct !iven this information# $. Deither Eate nor Ted is entitled to the dividend. B. Eate is entitled to the dividend 1ut Ted is not. C. Ted is entitled to the dividend 1ut Eate is not. D. %oth Ted and Eate are entitled to the dividend. '. %oth Ted and Eate are entitled to one-half of the dividend amount. Refer to section 17.1
17-8/
(1. $ll else equal the mar&et value of a stoc& ;ill tend to decrease 1y rou!hly the afterta7 value of the dividend on the6 $. dividend declaration date. B. e7-dividend date. C. date of record. D. date of payment. '. day after the date of payment. Refer to section 17.1
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$" Section: "#%" &o'ic: *+$di!idend date
((. "hich one of the follo;in! statements related to dividend policy is correct# $. The primary question related to dividend policy is ;hether or not a firm should ever pay a dividend. %. %oth dividends and dividend policy are irrelevant. C. Dividend policy focuses on the timin! of dividend payments. D. Aomemade dividends increase the importance of a firm*s dividend policy decisions. '. "hether or not a firm ever pays a dividend is irrelevant to equity valuation. Refer to section 17.(
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$, Section: "#%, &o'ic: Di!idend 'olicy
17-81
(2. $utomatic dividend reinvestment plans6 :. require that stoc&holders reinvest all of the dividends to ;hich they are entitled. ::. sometimes !rant shareholders the privile!e of purchasin! additional shares at a discounted price. :::. help shareholders create their o;n homemade dividend policies. :F. help ma&e corporate dividend policies irrelevant to individual stoc&holders. $. :: only %. ::: only C. :: and ::: only D. :: ::: and :F only '. : :: ::: and :F Refer to section 17.(.
AACSB: N/A Bloom's: Com're)ension Difficulty: /ntermediate Learning Ob ecti!e: "#$, Section: "#%, &o'ic: Di!idend rein!estment 'lans
(8. "hich of the follo;in! tends to increase the a1ility of a shareholder to create his or her o;n homemade dividend policy# :. lo; ta7es on capital !ains ::. dividend reinvestment plans :::. lar!e holdin!s of shares :F. lo; cost equity purchases $. :: only %. :: and ::: only C. : :: and ::: only D. :: ::: and :F only E. : :: ::: and :F Refer to section 17.(
AACSB: N/A Bloom's: Com're)ension Difficulty: /ntermediate Learning Ob ecti!e: "#$, Section: "#%, &o'ic: -omemade di!idend 'olicy
17-8(
(0. "hich one of the follo;in! favors a lo; dividend policy# A. the ta7 on capital !ains is deferred until the !ain is reali,ed %. fe; if any positive net present value pro-ects are availa1le to a firm C. a ma-ority of the shareholders has a lo; relevant ta7 rate D. a ma-ority of the shareholders has 1etter investment opportunities ;ith similar ris&s '. corporate ta7 rates e7ceed personal ta7 rates Refer to section 17.2
AACSB: N/A Bloom's: Com're)ension Difficulty: Basic Learning Ob ecti!e: "#$, Section: "#%3 &o'ic: Di!idend 'olicy
(3. The fact that flotation costs can 1e si!nificant is an ar!ument for6 $. a firm to issue lar!er dividends than its closest competitors. %. a firm to maintain a constant dividend policy even if it frequently has to issue ne; C. shares. D. maintainin! a constant dividend policy even ;hen profits decline si!nificantly. '. maintainin! a hi!h dividend policy. F. maintainin! a lo; dividend policy and rarely issuin! e7tra dividends. Refer to section 17.2
AACSB: N/A Bloom's: Com're)ension Difficulty: Basic Learning Ob ecti!e: "#$, Section: "#%3 &o'ic: 5lotation costs
17-82
(7. "hich of the follo;in! tend to &eep dividends lo;# :. shareholders desirin! current income ::. terms contained in 1ond indenture a!reements :::. the desire to maintain constant dividends over time :F. flotation costs $. :: and ::: only %. : and :F only C. :: ::: and :F only D. : :: and ::: only '. : :: ::: and :F Refer to section 17.2
AACSB: N/A Bloom's: Com're)ension Difficulty: /ntermediate Learning Ob ecti!e: "#$, Section: "#%3 &o'ic: Di!idend 'olicy
(?. "hich of the follo;in! shareholders tend to favor a hi!h dividend policy# :. retired individuals ::. endo;ment funds :::. corporate investors :F. investors ;ith hi!h dividend ta7 rates 1ut lo; capital !ains ta7 rates $. : and ::: only %. :: and :F only C. : :: and ::: only D. :: ::: and :F only '. : :: ::: and :F Refer to section 17.8
AACSB: N/A Bloom's: Com're)ension Difficulty: /ntermediate Learning Ob ecti!e: "#$, Section: "#%0 &o'ic: Di!idend 'olicy
17-88
(@. $n investor is more li&ely to prefer a hi!h dividend payout if a firm6 $. has hi!h flotation costs. B. has fe; if any positive net present value pro-ects. C. has lo;er ta7 rates than the investor. D. has a stoc& price that is increasin! rapidly. '. offers su1stantial !ains on its equities ;hich are ta7ed at a favora1le rate. Refer to section 17.8
AACSB: N/A Bloom's: Com're)ension Difficulty: Basic Learning Ob ecti!e: "#$, Section: "#%0 &o'ic: Di!idend 'olicy
2/. The information content of a dividend increase !enerally si!nals that6 $. the firm has a one-time surplus of cash. %. the firm has fe; if any net present value pro-ects to pursue. C. mana!ement 1elieves earnin!s !ro;th ;ill 1e stron! !oin! for;ard. D. the firm has more cash than it needs due to a decline in future orders. '. dividends thereafter ;ill 1e lo;er. Refer to section 17.0
AACSB: N/A Bloom's: Com're)ension Difficulty: Basic Learning Ob ecti!e: "#$, Section: "#%. &o'ic: /nformation content
17-80
21. 9.). Moffatt :nc. has paid a quarterly dividend of .1.(/ per share for the last ten quarters. "hich one of the follo;in! is most apt to cause the firm to reduce the amount of its ne7t dividend payment# $. decrease in the ne7t quarter*s revenue %. decrease in the ne7t quarter*s net income C. loss of a ma-or customer ;hich lo;ers the firm*s outloo& for the ne7t fe; years D. ma-or lump sum cash outflo; ne7t month to settle a class action product lia1ility la;suit on a product that is no lon!er produced '. decrease in the num1er of ne; pro-ects under consideration as compared to last year Refer to section 17.0
AACSB: N/A Bloom's: Com're)ension Difficulty: /ntermediate Learning Ob ecti!e: "#$, Section: "#%. &o'ic: Di!idend 'olicy
2(. The dividend mar&et is in equili1rium ;hen6 $. all firms adopt a lo; dividend policy. %. half of the firms adopt a lo; dividend policy and half adopt a hi!h dividend policy. C. all clienteles are satisfied. D. dividends remain constant and no special dividends are declared. '. the total amount of the annual dividends is equal to the net income for the year. Refer to section 17.0
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$, Section: "#%. &o'ic: Clientele effect
17-83
22. "hich one of the follo;in! statements related to stoc& repurchases is correct# $. $n open mar&et stoc& repurchase increases the total ;ealth of a shareholder if you i!nore ta7es costs and mar&et imperfections. %. Tar!eted repurchases must 1e offered to all shareholders 1ut can 1e done in steps such that only a portion of the shareholders have the option to sell at any one point in time. C. "hen a firm ;ishes to repurchase shares in the open mar&et it ;ill do so in a special tradin! session that is set up 1y the 9'C. D. $ firm may spend more cash over the course of a year on stoc& repurchases than it does on cash dividends. '. Tender offer prices must 1e set equal to the openin! mar&et price on the day the tender offer is announced. Refer to section 17.3
AACSB: N/A Bloom's: Com're)ension Difficulty: /ntermediate Learning Ob ecti!e: "#$0 Section: "#%1 &o'ic: Stoc2 re'urc)ase
28. "hich one of the follo;in! statements related to stoc& repurchases is correct# $. B.9. industrial firms have increased their stoc& repurchases every year for each of the past t;enty years. %. $ stoc& repurchase can 1e used as a means for incum1ent officers to retain control of a firm. C. $ tender offer indicates that a firm is ;illin! and a1le to purchase ho; ever many shares the current shareholders ;ish to sell. D. $ll stoc& repurchases must 1e identified as such to the sellin! party. E. 9toc& repurchases can 1e a relatively ta7-efficient method of distri1utin! cash to shareholders. Refer to section 17.3
17-87
20. $ stoc& repurchase pro!ram6 $. requires all shareholders to sell a fraction of their shares. %. is preferred over a hi!h-dividend pro!ram only 1y ta7-e7empt shareholders. C. decreases 1oth the num1er of shares outstandin! and the mar&et price per share. D. has no effect on a firm*s financial statements. E. is essentially the same as a cash dividend pro!ram provided there are no ta7es or other costs. Refer to section 17.3
23. "hich one of the follo;in! is a result of a stoc& repurchase# $. increase in the num1er of shares outstandin! %. increase in the mar&et price per share C. increase in the total equity of the repurchasin! firm D. decrease in 'P9 E. P' ratio equal to that resultin! from a compara1le cash dividend Refer to section 17.3
17-8?
27. :f you i!nore ta7es and costs a stoc& repurchase ;ill6 :. reduce the total assets of a firm. ::. decrease the earnin!s per share. :::. reduce the P' ratio more so than an equivalent stoc& dividend. :F. reduce the total equity of a firm. $. : and ::: only B. : and :F only C. :: and :F only D. : ::: and :F only '. :: ::: and :F only Refer to section 17.3
2?. 9teve o;ns 2 /// shares of DCP :nc. stoc& ;hich he purchased si7 years a!o at a price of .(( a share. Today these shares are sellin! for .3? each. $ssume the current ta7 la;s are such that 9teve is su1-ect to a ta7 rate of (0 percent on 1oth his dividend income and his capital !ains. +rom 9teve*s point of vie; a stoc& repurchase today6 =:!nore costs> $. is equivalent to a cash dividend in all respects. B. is more desira1le than a cash dividend in respect to ta7es. C. ;ill result in the same ta7 lia1ility as an equivalent cash dividend. D. is more hi!hly ta7ed than a cash dividend. '. is totally unaccepta1le to him. Refer to section 17.7
AACSB: N/A Bloom's: Com're)ension Difficulty: /ntermediate Learning Ob ecti!e: "#$0 Section: "#%# &o'ic: Stoc2 re'urc)ase
17-8@
2@. "hich one of the follo;in! statements correctly applies to B.9. industrial firms 1ased on the period of 1@?8 -(//8# $. 'arnin!s !ro;th rates tend to la! dividend !ro;th rates. %. Dividends tend to fluctuate si!nificantly from quarter to quarter. C. The percenta!e of these firms payin! dividends in (//8 ;as hi!her than in 1@?8. D. The total amount of dividends paid 1y these firms ;as !reater in (//8 than in 1@?8. '. Don-dividend payin! firms in 1@?8 ;ere more apt to commence payin! re!ular dividends than to implement a stoc& repurchase pro!ram. Refer to section 17.7
AACSB: N/A Bloom's: Com're)ension Difficulty: Basic Learning Ob ecti!e: "#$, Section: "#%# &o'ic: Di!idend 'olicy
8/. "hich one of the follo;in! statements appears to 1e supported 1y the current dividend policies of B.9. industrial firms# $. +irms tend to increase the dividend amount per share even ;hen it*s unclear if the increase can 1e maintained. %. :nvestors no lon!er react to chan!es either up or do;n in dividends. C. De;er hi!h-!ro;th firms tend to pay lar!er dividends than mature firms. D. Dividends are still vie;ed 1y shareholders as a si!nal of a firm*s future outloo&. '. Mana!ers are no lon!er hesitant to lo;er dividend payments. Refer to section 17.7
17-0/
81. "hich one of the follo;in! statements is correct# $. +irms prefer to cut dividend payments rather than 1orro; money to fund a short-term cash need. %. 9hare repurchases tend to increase a!ency costs. C. Maintainin! a steady dividend is a &ey !oal of most dividend-payin! firms. D. Ta7 rates are the &ey factor in determinin! a firm*s dividend policy. '. 9toc& prices tend to i!nore e7pected chan!es in dividend payments. Refer to section 17.7
8(. "hich of the follo;in! 1alance sheet accounts are affected 1y a small stoc& dividend# :. cash ::. common stoc& :::. retained earnin!s :F. capital in e7cess of par value $. : and ::: only %. :: and ::: only C. :: and :F only D. :: ::: and :F only '. : :: ::: and :F Refer to section 17.?
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Small stoc2 di!idend
17-01
82. $ small stoc& dividend is defined as a stoc& dividend of less than <<<<< percent. $. 1/ to 10 %. 10 to (/ C. (/ to (0 D. (0 to 2/ '. 2/ to 20 Refer to section 17.?
AACSB: N/A Bloom's: Knowledge Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Small stoc2 di!idend
88. "hich one of the follo;in! is a result of a small stoc& dividend# $. increase in retained earnin!s %. decrease in total o;ner*s equity C. decrease in cash D. decrease in capital in e7cess of par value E. increase in common stoc& Refer to section 17.?
AACSB: N/A Bloom's: Com're)ension Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Small stoc2 di!idend
17-0(
80. "hich of the follo;in! account 1alance chan!es occur as a result of a lar!e stoc& dividend# :. increase in common stoc& ::. decrease in capital in e7cess of par :::. increase in capital in e7cess of par :F. decrease in retained earnin!s $. : and ::: only %. :: and :F only C. : and :F only D. :: and ::: only '. : ::: and :F only Refer to section 17.?
AACSB: N/A Bloom's: Com're)ension Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Large stoc2 di!idend
83. Revol-Tech is a technolo!y firm ;ith e7cellent !ro;th prospects. The firm ;ishes to do somethin! to ac&no;led!e the loyalty of the shareholders 1ut needs all of its availa1le cash to fund the firm*s rapid !ro;th. The mar&et price of the stoc& is currently tradin! at the upper end of its preferred tradin! ran!e. The firm is most apt to consider ;hich one of the follo;in! in this situation# $. liquidatin! dividend B. stoc& split C. reverse stoc& split D. small stoc& dividend '. special cash dividend Refer to section 17.?
AACSB: N/A Bloom's: Analysis Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Stoc2 s'lit
17-02
87. "hich t;o of the follo;in! are the 1est -ustifications for a reverse stoc& split# :. com1ine a reverse stoc& split ;ith a stoc& repurchase to ena1le a firm to !o dar& ::. increase the respecta1ility of the stoc& :::. avoid delistin! :F. reduce transaction costs for shareholders $. : and :: only B. : and ::: only C. :: and ::: only D. :: and :F only '. ::: and :F only Refer to section 17.?
AACSB: N/A Bloom's: Com're)ension Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: (e!erse stoc2 s'lit
8?. $ stoc& split6 $. increases the total value of the common stoc& account. %. decreases the value of the retained earnin!s account. C. increases the par value per share. D. increases the value of the capital in e7cess of par account. E. decreases the mar&et value per share. Refer to section 17.?
AACSB: N/A Bloom's: Com're)ension Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Stoc2 s'lit
17-08
8@. 9toc& splits can 1e used to6 A. ad-ust the mar&et price of a stoc& such that it falls ;ithin a preferred tradin! ran!e. %. decrease the e7cess cash held 1y a firm there1y lo;erin! a!ency costs. C. increase 1oth the num1er of shares outstandin! and the mar&et price per share. D. increase the total equity of a firm. '. ad-ust the de1t-equity ratio. Refer to section 17.?
AACSB: N/A Bloom's: Com're)ension Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Stoc2 s'lit
0/. "hich one of the follo;in! is a direct result of a (-for-1 stoc& split# $. a 1// percent increase in the num1er of shareholders %. a 1// percent increase in the common stoc& account 1alance C. a 1// percent decrease in the stoc& price D. a 0/ percent increase in the num1er of shares outstandin! E. a 0/ percent decrease in the par value per share Refer to section 17.?
AACSB: Analytical Bloom's: Com're)ension Difficulty: /ntermediate Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Stoc2 s'lit
17-00
01. 9li!o Minerals stoc& is currently tradin! at .3 a share. The firm 1elieves its primary clientele can afford to spend 1et;een .1 0// and .( /// to purchase a round lot of 1// shares. The firm should consider a6 A. reverse stoc& split. %. liquidatin! dividend. C. stoc& dividend. D. stoc& split. '. special dividend. Refer to section 17.?
AACSB: N/A Bloom's: Analysis Difficulty: /ntermediate Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: (e!erse stoc2 s'lit
0(. $ one-for-four reverse stoc& split ;ill6 $. increase the par value 1y (0 percent. %. increase the num1er of shares outstandin! 1y 8// percent. C. increase the mar&et value 1ut not affect the par value per share. D. increase a .1 par value to .8. '. increase a .1 par value to .0. Refer to section 17.?
AACSB: Analytical Bloom's: Analysis Difficulty: /ntermediate Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: (e!erse stoc2 s'lit
17-03
02. $ firm ;ants to maintain a minimum stoc& price of .10 a share. Due to a recent mar&et do;nturn the stoc& is currently sellin! for .3 a share. The firm should consider a6 $. 2-for-1 stoc& split. %. 8-for-1 stoc& split. C. 1-for-2 reverse stoc& split. D. 1-for-8 reverse stoc& split. '. 1-for-0 reverse stoc& split. Refer to section 17.?
AACSB: Analytical Bloom's: Analysis Difficulty: /ntermediate Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: (e!erse stoc2 s'lit
08. Plyler Ca1inets declared a dividend of .1.(/ a share on May 10 to holders of record on Monday 4une 1. The dividend is paya1le on 4une 10. 9ara purchased 0// shares of Plyler Ca1inets stoc& on +riday May (@. Ao; much dividend income ;ill she receive on 4une 10 from Plyler Ca1inets# A. ./ %. ./.?/ C. .1.3/ D. .13/.// '. .2(/.// 9ara ;ill not receive any dividend income 1ecause she purchased the shares after the e7dividend date.
AACSB: Analytic Bloom's: A''lication Difficulty: Basic Learning Ob ecti!e: "#$" Section: "#%" &o'ic: *+$di!idend date
17-07
00. 9teve purchased 2// shares of $lpha %eta stoc& on May @. Cn May 10 he purchased another (// shares and then on May (( he purchased a final 8// shares of $lpha %eta stoc&. The company declared a dividend of .1.3/ a share on $pril 2/ to holders of record on +riday May (2. The dividend is paya1le on 4une (. Ao; much dividend income ;ill 9teve receive on 4une ( from $lpha %eta# $. ./ %. .8?/ C. .?// D. .1 (// '. .1 88/ Dividend received I .1.3/=2// J (//> I .?//
03. Cn 4uly 7 you purchased 0// shares of "a!oneer :nc. stoc& for .(1 a share. Cn $u!ust 1 you sold (// shares of this stoc& for .(? a share. Gou sold an additional 1// shares on $u!ust 17 at a price of .(0 a share. The company declared a ./.@0 per share dividend on $u!ust 8 to holders of record as of "ednesday $u!ust 10. This dividend is paya1le on 9eptem1er 1. Ao; much dividend income ;ill you receive on 9eptem1er 1 as a result of your o;nership of "a!oneer stoc&# $. ./ %. .1@/ C. .(?0 D. .23/ '. .870 Dividend received I ./.@0 =0// - (//> I .(?0
17-0?
07. "e1ster Bnited is payin! a .1.1/ per share dividend today. There are 20/ /// shares outstandin! ;ith a mar&et price of .(2 per share. :!nore ta7es. %efore the dividend the company had earnin!s per share of .1.78. $s a result of this dividend the6 $. retained earnin!s ;ill decrease 1y .20/ ///. %. retained earnin!s ;ill increase 1y .2?0 ///. C. total firm value ;ill not chan!e. D. earnin!s per share ;ill increase to .(.?8. E. price-earnin!s ratio ;ill 1e 1(.0@. Price-earnin!s ratio after the dividend I =.(2 - .1.1/>K.1.78 I 1(.0@
AACSB: Analytic Bloom's: A''lication Difficulty: Basic Learning Ob ecti!e: "#$, Section: "#%1 &o'ic: 6rice$earnings ratio
0?. Gou o;n ( (// shares of Deltona Aard;are. The company has stated that it plans on issuin! a dividend of ./.8( a share at the end of this year and then issuin! a final liquidatin! dividend of .(.@/ a share at the end of ne7t year. Gour required rate of return on this security is 13 percent. :!norin! ta7es ;hat is the value of one share of this stoc& to you today# $. .(.2/ %. .(.82 C. .(.0( D. .(.@( '. .2.2( Falue per share I =./.8(K1.131> J =.(.@/K1.13(> I .(.0(
AACSB: Analytic Bloom's: A''lication Difficulty: Basic Learning Ob ecti!e: "#$" Section: "#%, &o'ic: Stoc2 !alue
17-0@
0@. $l o;ns ?// shares of The Good )ife Co. The company recently issued a statement that it ;ill pay a dividend per share of ./.00 this year and a ./.3/ per share dividend ne7t year. $l does not ;ant any dividend income this year 1ut does ;ant as much dividend income as possi1le ne7t year. $l earns ?.0 percent on his investments. :!norin! ta7es ;hat ;ill $l*s total homemade dividend 1e ne7t year# $. .@1/.(/ %. .@(/.// C. .@2/.0/ D. .@81.?/ E. .@07.8/ Aomemade dividend income for ne7t year I L=./.00 1./?0> J ./.3/M ?// I .@07.8/
AACSB: Analytic Bloom's: A''lication Difficulty: Basic Learning Ob ecti!e: "#$, Section: "#%, &o'ic: -omemade di!idend
3/. 4ennin!ston Mills has a mar&et value equal to its 1oo& value. Currently the firm has e7cess cash of .1 (// other assets of .0 ?// and equity valued at .2 70/. The firm has (0/ shares of stoc& outstandin! and net income of .8(/. "hat ;ill the ne; earnin!s per share 1e if the firm uses (0 percent of its e7cess cash to complete a stoc& repurchase# A. .1.?2 %. .1.?@ C. .1.@3 D. .(.// '. .(./? Price per share I .2 70/K(0/ I .10 Dum1er of shares repurchased I =/.(0 .1 (//>K.10 I (/ shares De; 'P9 I .8(/K=(0/ - (/> I .1.?2
AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Ob ecti!e: "#$0 Section: "#%1 &o'ic: Stoc2 re'urc)ase
17-3/
31. %lasco*s has a mar&et value equal to its 1oo& value. Currently the firm has e7cess cash of .1 22( other assets of .11 378 and equity of .7 (//. The firm has 3// shares of stoc& outstandin! and net income of .?2?. %lasco*s has decided to spend one-third of its e7cess cash on a share repurchase pro!ram. Ao; many shares of stoc& ;ill 1e outstandin! after the stoc& repurchase is completed# $. 027 shares %. 00/ shares C. 032 shares D. 07? shares '. 0?8 shares Price per share I .7 (//K3// I .1( Dum1er of shares repurchased I L=1K2> .1 22(MK.1( I 27 De; num1er of shares outstandin! I 3// - 27 I 032 shares
3(. Tuc&er*s Dational Distri1utin! has a current mar&et value of equity of .1/ 330. Currently the firm has e7cess cash of .38/ total assets of .(( 8// net income of .2 (1/ and 0// shares of stoc& outstandin!. Tuc&er*s is !oin! to use all of its e7cess cash to repurchase shares of stoc&. "hat ;ill the stoc& price per share 1e after the stoc& repurchase is completed# $. .(/.?7 %. .(/.@8 C. .(1./3 D. .(1.22 '. .(1.8( Current price per share I .1/ 330K0// I .(1.22 Dum1er of shares repurchased I .38/K.(1.22 I 2/ De; num1er of shares outstandin! I 0// - 2/ I 87/ De; equity I .1/ 330 - .38/ I .1/ /(0 De; price per share I .1/ /(0K87/ I .(1.22
17-31
32. The equity of %loomin! Roses has a total mar&et value of .13 ///. Currently the firm has e7cess cash of .1 (// and net income of .10 8//. There are 70/ shares of stoc& outstandin!. "hat ;ill 1e the percenta!e chan!e in the stoc& price per share if the firm pays out all of its e7cess cash as a cash dividend# $. -@.8/ percent B. -7.0/ percent C. -0.?/ percent D. -(.70 percent '. /.// percent Price per share 1efore cash dividend I .13 ///K70/ I .(1.22 Price per share after cash dividend I =.13 /// - .1 (//>K70/ I .1@.72 Percenta!e chan!e in price I =.1@.72 - .(1.22>K.(1.22 I -7.0/ percent
AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%1 &o'ic: *+$di!idend stoc2 'rice
38. Dela;are Trust has 80/ shares of common stoc& outstandin! at a mar&et price per share of .(7. Currently the firm has e7cess cash of .8// total assets of .(? @// and net income of .1 2(/. The firm has decided to pay out all of its e7cess cash as a cash dividend. "hat ;ill the earnin!s per share 1e after this dividend is paid# $. .(.3@ %. .(.?3 C. .(.@2 D. .2./7 '. .2.(8 'arnin!s per share I .1 2(/K80/ I .(.@2
AACSB: Analytic Bloom's: A''lication Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%1 &o'ic: Cas) di!idend
17-3(
30. 4osh*s :nc. has 7 /// shares of stoc& outstandin! ;ith a par value of .1.// per share and a mar&et value of .2( a share. The 1alance sheet sho;s .73 /// in the capital in e7cess of par account .7 /// in the common stoc& account and .38 ?// in the retained earnin!s account. The firm -ust announced a 1/ percent stoc& dividend. "hat is the value of the capital in e7cess of par account after the dividend# $. .0/ 3// %. .08 2// C. .73 /// D. .@7 7// '. .1/1 8// Chan!e in capital in e7cess of par I =7 /// shares /.1/> =.2( - .1> I .(1 7// De; capital in e7cess of par account 1alance I .73 /// J .(1 7// I .@7 7//
AACSB: Analytic Bloom's: A''lication Difficulty: Basic Learning Ob ecti!e: "#$0 Section: "#%4 &o'ic: Small stoc2 di!idend
33. Randall*s :nc. has (/ /// shares of stoc& outstandin! ;ith a par value of .1.// per share. The mar&et value is .1( per share. The 1alance sheet sho;s .8( /// in the capital in e7cess of par account .(/ /// in the common stoc& account and .0/ 0// in the retained earnin!s account. The firm -ust announced a 0 percent =small> stoc& dividend. "hat ;ill the 1alance in the retained earnin!s account 1e after the dividend# A. .2? 0// %. .2@ 0// C. .0/ 0// D. .31 0// '. .3( 0// Retained earnin!s I L=(/ /// shares /./0> .1( -1M J .0/ 0// I .2? 0//
17-32
37. 9outhern +ried Chic&en has ? /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et value of .28 per share. The 1alance sheet sho;s .2@ /// in the capital in e7cess of par account .? /// in the common stoc& account and .10( /// in the retained earnin!s account. The firm -ust announced a 0 percent stoc& dividend. "hat ;ill total o;ners* equity 1e after the dividend# $. .1?0 ?// %. .1@3 /// C. .1@@ /// D. .(/3 ?// '. .(1( (// Total equity ;ill not chan!e as this is a small stoc& dividend. Total equity I .2@ /// J .? /// J .10( /// I .1@@ ///
3?. Fal*s Marina 9upply has 2 0// shares of stoc& outstandin! ;ith a par value of .1.// per share and a mar&et value of .1@ per share. The 1alance sheet sho;s .2 0// in the common stoc& account .(8 /// in the capital in e7cess of par account and .21 8// in the retained earnin!s account. The firm -ust announced a 1// percent stoc& dividend. "hat is the value of the capital in e7cess of par account after the dividend# $. ./ %. .(/ 0// C. .(8 /// D. .00 0// '. .?7 /// The capital in e7cess of par account ;ill remain at .(8 /// as it does not chan!e ;ith a lar!e stoc& dividend.
AACSB: Analytic Bloom's: A''lication Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Large stoc2 di!idend
17-38
3@. Eurt*s Mar&et has ? /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et value of .12 per share. The 1alance sheet sho;s .? /// in the common stoc& account .(3 /// in the capital in e7cess of par account and .2( 7// in the retained earnin!s account. The firm -ust announced a 1// percent stoc& dividend. "hat ;ill 1e the 1alance in the retained earnin!s account after this dividend# $. ./ B. .(8 7// C. .2( 7// D. .8/ 7// '. .1(? 7// Retained earnin!s I .2( 7// - L=? /// shares 1./> .1M I .(8 7//
7/. The Tannin! %ed has 1/ /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et value of .? per share. The 1alance sheet sho;s .1/ /// in the common stoc& account .3/ /// in the capital in e7cess of par account and .@8 2// in the retained earnin!s account. The firm -ust announced a 1// percent stoc& dividend. "hat ;ill 1e the value of the common stoc& account after the dividend# $. .0 /// %. .1/ /// C. .11 /// D. .10 /// E. .(/ /// Common stoc& I L=1/ /// shares 1./> .1M J .1/ /// I .(/ ///
17-30
71. Fer1al Communications :nc. has 18 /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et value of .83 per share. The firm -ust announced a 1// percent stoc& dividend. "hat is the mar&et value per share after the dividend# A. .(2.// %. .28.0/ C. .83.// D. .3@.// '. .@(.// Mar&et value per share I =18 /// .83>K=18 /// (> I .(2
7(. Della*s Pool Aalls has 1( /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et price of .2@ a share. The firm -ust announced a 8-for-2 stoc& split. Ao; many shares of stoc& ;ill 1e outstandin! after the split# $. @ /// shares %. 1/ /// shares C. 1( /// shares D. 18 3// shares E. 13 /// shares Dum1er of shares I 1( /// 8K2 I 13 /// shares
AACSB: Analytic Bloom's: A''lication Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Stoc2 s'lit
17-33
72. $lfon,o*s :talian Aouse has (0 /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et price of .23 a share. The firm -ust announced a 0-for-2 stoc& split. "hat ;ill the mar&et price per share 1e after the split# A. .(1.3/ %. .(8.(/ C. .23.// D. .08.// '. .3/.// Mar&et price per share I .23 2K0 I .(1.3/
78. 9outh 9hore )imited has (1 /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et price of .7.0/ a share. The firm -ust announced a 0-for-( stoc& split. "hat ;ill the par value of the stoc& 1e after the split# A. ./.8/ %. ./.?/ C. .1.// D. .1.8/ '. .1.3/ Par value I .1 =(K0> I ./.8/
17-37
70. Mario*s has 1? /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et price of .8 a share. The 1alance sheet sho;s .1? /// in the common stoc& account .223 /// in the paid in surplus account and .38 /// in the retained earnin!s account. The firm -ust announced a 0-for-1 stoc& split. "hat ;ill the paid in surplus account value 1e after the split# $. .33 /// B. .223 /// C. .8(3 /// D. .08? /// '. .3/3 /// $ stoc& split does not chan!e the total value of the paid in surplus account.
73. Pre,ario*s has (0 /// shares of stoc& outstandin! ;ith a par value of .1 per share. The current mar&et value of the firm is .?87 ///. Currently the retained earnin!s account 1alance is .8(? /// and the capital in e7cess of par value account 1alance is .1?7 ///. The company -ust announced a 2-for-1 stoc& split. "hat is the common stoc& account 1alance after the stoc& split# $. .? 222 B. .(0 /// C. .70 /// D. .77 222 '. .(2( /// Common stoc& account value 1efore the stoc& split I (0 /// .1 I .(0 /// $ stoc& split does not chan!e the total value of the common stoc& account.
17-3?
77. The Peanut 9hac& has 3 /// shares of stoc& outstandin! ;ith a par value of .1 per share. The current mar&et value of the firm is .180 3//. The company -ust announced a 2-for-( stoc& split. "hat ;ill the mar&et price per share 1e after the split# $. .1(.18 B. .13.1? C. .(8.(7 D. .(?.(/ '. .23.8/ Mar&et price per share I =.180 3//K3 ///> (K2 I .13.1?
7?. "estern Mountain "ater has 11 /// shares of stoc& outstandin! ;ith a par value of .1 per share. The current mar&et value of the firm is .120 ///. The 1alance sheet sho;s a capital in e7cess of par value account 1alance of .3? /// and retained earnin!s of .8@ ///. The company -ust announced a (-for-1 stoc& split. "hat ;ill the capital in e7cess of par value account 1alance 1e after the split# $. .80 222 %. .08 337 C. .3? /// D. .?3 337 '. .1/( /// The paid in surplus account ;ill remain at .3? /// as a stoc& split has no effect on this account.
17-3@
7@. The Peace River Corporation has 37 /// shares of stoc& outstandin! at a mar&et price of .8? a share. The company has -ust announced a 2-for-( stoc& split. Ao; many shares of stoc& ;ill 1e outstandin! after the split# $. 88 337 shares %. 08 222 shares C. ?@ 222 shares D. 1// 0// shares '. 1/? 333 shares Dum1er of shares I 37 /// 2K( I 1// 0// shares
?/. Cooper %rands :nc. has 3? /// shares of stoc& outstandin! at a mar&et price of .32 a share. The par value is .1 per share. The company has -ust announced a 0-for-8 stoc& split. "hat ;ill the mar&et price per share 1e after the split# A. .0/.8/ %. .0?.(/ C. .3(.0/ D. .7?.70 '. .?(.0/ Mar&et price per share I .32 8K0 I .0/.8/
17-7/
?1. The Minin! Co. has (/ /// shares of stoc& outstandin!. The current mar&et value of the firm is .2(? ///. The company has retained earnin!s of .(7 /// capital in e7cess of par value of .13/ /// and a common stoc& account value of .(/ ///. The company is plannin! a (-for-0 reverse stoc& split. "hat ;ill the par value per share 1e after the split# $. ./.10 %. ./.(/ C. .1.// D. .(.0/ '. .0.// Par value per share I =.(/ ///K(/ /// shares> 0K( I .(.0/
AACSB: Analytic Bloom's: A''lication Difficulty: Basic Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: (e!erse stoc2 s'lit
?(. 'ast Coast Marina has ((/ /// shares of stoc& outstandin!. The current mar&et value of the firm is .1?.@( million. The company has retained earnin!s of .2.? million paid in surplus of .3.7 million and a common stoc& account value of .((/ ///. The company is plannin! a 2-for-( stoc& split. "hat ;ill the mar&et price per share 1e after the split# $. .(?.37 B. .07.22 C. .33.37 D. .1/?.// '. .1(@.// Mar&et price per share I =.1?.@(mK((/ /// shares> (K2 I .07.22
17-71
?2. 4ean*s "arehouse has 13 /// shares of stoc& outstandin!. The current mar&et value of the firm is .73? ///. The company has retained earnin!s of .1(2 /// paid in surplus of .2(1 /// and a common stoc& account value of 13 ///. The company is plannin! a 0-for-2 stoc& split. "hat ;ill the retained earnin!s account value 1e after the split# $. .72 ?// B. .1(2 /// C. .102 3// D. .(/0 /// '. .(80 0// The retained earnin!s ;ill remain at .1(2 /// as a stoc& split does not affect the 1alance.
?8. The common stoc& of Chec&ers :nc. is sellin! for .03 a share and the par value per share is .1. Currently the firm has a total mar&et value of .?1( ///. Ao; many shares of stoc& ;ill 1e outstandin! if the firm does a 2-for-( stoc& split# $. @ 337 shares %. 1( 0// shares C. 18 0// shares D. 17 70/ shares E. (1 70/ shares Dum1er of shares I =.?1( ///K.03> 2K( I (1 70/ shares
17-7(
?0. The common stoc& of Gillen 'ntertainment is sellin! for .7? a share. The par value per share is .1. Currently the firm has a total mar&et value of .@23 ///. Ao; many shares of stoc& ;ill 1e outstandin! if the firm does a 0-for-( stoc& split# $. 8 ?// shares %. @ 3// shares C. 10 /// shares D. 2/ /// shares '. 2( (// shares Dum1er of shares I =.@23 ///K.7?> 0K( I 2/ /// shares
?3. Purvis )a;n Products has 1? /// shares of stoc& outstandin! at a mar&et price of .0.0/ a share. "hat ;ill the mar&et price per share 1e if the company does a 1-for-8 reverse stoc& split# $. .1.2? %. .0.0/ C. .11.// D. .13.0/ E. .((.// Mar&et price I .0.0/ 8K1 I .((
17-72
?7. The Clive Fase has 03 /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et value of .11 a share. The company -ust announced a 2-for-8 reverse stoc& split. Currently you o;n 8// shares of this stoc&. "hat ;ill the total value of your shares 1e after the reverse stoc& split# $. .2 2// B. .8 8// C. .0 0// D. .0 ?37 '. .3 222 The total value of your shares ;ill not chan!e. Total value I 8//=2K8> .11=8K2> I .8 8//
??. The Green +lorist has (? /// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et value of .7 a share. The company -ust announced a (-for-0 reverse stoc& split. Currently you o;n 2// shares of this stoc&. Ao; many shares ;ill you o;n after the reverse stoc& split# $. 3/ shares %. 1(/ shares C. 8?/ shares D. 3// shares '. 70/ shares Dum1er of shares I 2// (K0 I 1(/ shares
17-78
?@. City Center Pharmacy has 11 0// shares of stoc& outstandin! ;ith a par value of .1 per share and a mar&et value of .1/ a share. The company -ust announced a 2-for-7 reverse stoc& split. "hat ;ill the mar&et value per share 1e after the reverse stoc& split# $. .8.(@ %. .7.// C. .1/.// D. .(2.22 '. .(0.(1 Mar&et value per share I .1/ 7K2 I .(2.22
17-70

Essay Questions
@/. Gou are the C+C of a non-dividend payin! firm that currently has e7cess cash reserves. Gou are preparin! for an internal mana!ement meetin! ;here dividends are on the a!enda. Gou &no; that the C'C favors the commencement of a dividend pro!ram. Gou ho;ever oppose any dividend plan at this time. "rite a !ood ar!ument that you can use in the meetin! to support your position. "hile it is true that the firm currently has e7cess cash reserves those reserves can 1est 1e utili,ed to fund positive DPF pro-ects ;hich ;ill increase the value of the firm and thus the value of the shares held 1y our current shareholders. This increase in value does not create any ta7 lia1ility for those shareholders until or unless they opt to sell their shares. Dividends on the other hand ;ill create an immediate ta7 lia1ility for the ma-ority of our shareholders ;ho don*t need or prefer dividend income at this time. :f ;e commence a dividend pro!ram ;e may find that our clientele chan!es ;hich is not one of our current !oals. :n addition once ;e pay a dividend ;e need to 1e prepared to maintain that dividend as any decrease in the dividend at a later date ;ould send the ;ron! messa!e to our shareholders and to the mar&et. )astly should ;e deplete our e7cess cash reserves 1y implementin! a dividend pro!ram ;e mi!ht find ourselves in the uncomforta1le position of see&in! additional equity financin! ;hich ;ould 1e e7pensive and possi1ly also dilutive to our shareholders. +eed1ac&6 Refer to section 17.0
AACSB: (eflecti!e t)in2ing Bloom's: Analysis Difficulty: /ntermediate Learning Ob ecti!e: "#$, Section: "#%. &o'ic: Di!idend 'olicy
17-73
@1. '7plain the meanin! of the dividend clientele effect and ;hy it is important. There are certain !roups that prefer lo; dividend payouts and certain !roups that prefer hi!h dividend payoutsH these are dividend clienteles. :f clienteles e7ist then ;henever a firm chan!es its dividend policy it -ust s;aps one clientele for another. :n the end the firm cannot affect its value 1y ma&in! chan!es in its dividend policy unless there are unsatisfied clienteles. +eed1ac&6 Refer to section 17.0
AACSB: (eflecti!e t)in2ing Bloom's: Com're)ension Difficulty: Basic Learning Ob ecti!e: "#$, Section: "#%. &o'ic: Clienteles
17-77
@(. 9toc& repurchase pro!rams appear to 1ecomin! more popular ;ith 1usiness firms. '7plain the appeal of these pro!rams as compared to that of cash dividend pro!rams from the stoc& issuer*s point of vie;. %oth stoc& repurchase and cash dividend pro!rams are mechanisms for transferrin! e7cess funds from a corporation to its shareholders. Dividend pro!rams once commenced require an on!oin! cash outflo; that is difficult to reduce or terminate. 9toc& repurchase pro!rams on the other hand are structured such that a firm can control 1oth the timin! and the amount of the cash outflo;s. "hile a stoc& repurchase pro!ram is frequently announced there is no commitment to actually purchase the shares. This provides a lot more fle7i1ility to the firm than a dividend pro!ram. +eed1ac&6 Refer to section 17.3
AACSB: (eflecti!e t)in2ing Bloom's: Analysis Difficulty: /ntermediate Learning Ob ecti!e: "#$0 Section: "#%1 &o'ic: Stoc2 re'urc)ase
@2. :dentify some real-;orld factors ;hich mi!ht ma&e it more difficult for an individual to effectively create a homemade dividend policy. 9tudents should address factors such as ta7es transaction costs and investment earnin!s. :f sellin! .1// of securities is not equal to receivin! .1// of dividend income on an afterta7 1asis then investors ;ill have a preference for one over the other. 9ellin! small amounts of securities on a frequent 1asis tends to result in si!nificant transaction costs ma&in! such tradin! undesira1le. Receivin! dividend income today and then investin! that income for a short period of time say a year or t;o may yield less than desira1le results if the interest rate availa1le for such investments is lo; ;hich ;ould !enerally 1e the case for many shareholders. Thus effectively creatin! a homemade dividend policy may not 1e as simple as it sounds especially for investors ;ith smaller portfolios. +eed1ac&6 Refer to section 17.(
AACSB: (eflecti!e t)in2ing Bloom's: Analysis Difficulty: /ntermediate Learning Ob ecti!e: "#$, Section: "#%, &o'ic: -omemade di!idend
17-7?
@8. '7plain ho; cash dividends affect individual shareholders differently than an equal amount of funds spent on a repurchase. Dividends are paya1le to all shareholders on an equal per share 1asis ;ith the income ta7ed as dividend income ;hen received. 9hareholders have no control over the timin! of this dividend income and thus no control over the timin! of their ta7 lia1ility. $ repurchase affects only those shareholders ;ho opt to sell shares. The shareholders ;ho participate in a repurchase ;ill !enerally pay ta7es at the capital !ains rate ;ith the ta7 lia1ility created at the time of sale ;hich is controlled 1y the shareholder. 9hareholders ;ho do not participate in the repurchase pro!ram receive no cash and incur no ta7es. Thus a repurchase allo;s shareholders to control the timin! of their income and their related ta7 lia1ility. $lso it should 1e noted that investor preferences for either dividends or capital !ains depends upon the ta7 la;s that are in e7istence at a particular point in time. +eed1ac&6 Refer to section 17.3
AACSB: (eflecti!e t)in2ing Bloom's: Analysis Difficulty: /ntermediate Learning Ob ecti!e: "#$0 Section: "#%1 &o'ic: Stoc2 re'urc)ase !ersus cas) di!idend
17-7@

@0. The Green +iddle has declared an .? per share dividend. 9uppose capital !ains are not ta7ed 1ut dividends are ta7ed at 10 percent. De; :R9 re!ulations require that ta7es 1e ;ithheld at the time the dividend is paid. Green +iddle stoc& sells for .71.0/ per share and the stoc& is a1out to !o e7-dividend. "hat ;ill the e7-dividend price 1e# A. .38.7/ %. .37.@/ C. .7?.2/ D. .7@.0/ '. .?(.(2 '7-dividend price I .71.0/ - L.? =1 - /.10>M I .38.7/
AACSB: Analytic Bloom's: A''lication Difficulty: Basic *OC 7: "#$" Learning Ob ecti!e: "#$" Section: "#%" &o'ic: *+$di!idend 'rice
17-?/
@3. The o;ners* equity accounts for %lues;ell :ndustries are sho;n here6
:f %lues;ell :ndustries declares a 1-for-0 reverse stoc& split there ;ill 1e <<<< shares outstandin! at a par value of <<<<< per share. $. 1 ?//H .1.// B. 1 ?//H .0.// C. @ ///H .0.// D. 80 ///H ./.(/ '. 80 ///H .1.// De; shares I @ /// 1K0 I 1 ?// shares De; par value I .1 0K1 I .0
AACSB: Analytic Bloom's: A''lication Difficulty: Basic *OC 7: "#$3 Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: (e!erse stoc2 s'lit
@7. The Turtle Cave currently has 13/ /// shares of stoc& outstandin! that sell for .3/ per share. $ssume no mar&et imperfections or ta7 effects e7ist. "hat ;ill the ne; share price 1e if the firm declares a 10 percent stoc& dividend# $. .8?.7( B. .0(.17 C. .3/.// D. .38.0/ '. .3@.// De; price I .3/ =1K1.10> I .0(.17
AACSB: Analytic Bloom's: A''lication Difficulty: Basic *OC 7: "#$0 Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Stoc2 di!idend
17-?1
@?. Glendale Pavin! currently has 1(/ /// shares of stoc& outstandin! that sell for .08 per share. $ssume no mar&et imperfections or ta7 effects e7ist. "hat ;ill the ne; share price 1e if the firm declares a 8/ percent stoc& dividend# $. .21.1( %. .2(./? C. .20.1@ D. .2?.07 '. .8/.// De; price I .08 =1K1.8/> I .2?.07
AACSB: Analytic Bloom's: A''lication Difficulty: Basic *OC 7: "#$0 Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Stoc2 di!idend
17-?(
@@. The 1alance sheet for $pple Pie Corp. is sho;n here in mar&et value terms. There are 8 /// shares of stoc& outstandin!.
The company has declared a dividend of .1.?/ per share. The stoc& !oes e7-dividend tomorro;. :!nore any ta7 effects. "hat ;ill the price of the stoc& 1e tomorro;# $. .1?.@/ %. .23.(/ C. .8@.@0 D. .0(.10 '. .71.?/ Tomorro;*s stoc& price I =.(/7 ///K8 ///> - .1.?/ I .8@.@0
AACSB: Analytic Bloom's: A''lication Difficulty: Basic *OC 7: "#$. Learning Ob ecti!e: "#$" Section: "#%" &o'ic: Cas) di!idend
17-?2
1//. The 1alance sheet for $pple Pie Corp. is sho;n here in mar&et value terms. There are 0 /// shares of stoc& outstandin!.
The company has announced that it is !oin! to repurchase .8 20/ ;orth of stoc&. "hat ;ill the price of the stoc& 1e after this repurchase# A. .20.// %. .23.1@ C. .2@.(1 D. .8(.0/ '. .82.22 Current price per share I .170 ///K0 /// I .20 Dum1er of shares repurchased I .8 20/K.20 I 1(8.(@ De; shares outstandin! I 0 /// - 1(8.(@ I 8 ?70.71 De; share price I =.170 /// - .8 20/>K8 ?70.71 I .20
AACSB: Analytic Bloom's: Analysis Difficulty: Basic *OC 7: "#$1 Learning Ob ecti!e: "#$0 Section: "#%1 &o'ic: Stoc2 re'urc)ase
17-?8
1/1. The mar&et value 1alance sheet for :n1o7 Manufacturin! is sho;n here. :n1o7 has declared a (2 percent stoc& dividend. The stoc& !oes e7-dividend tomorro; =the chronolo!y for a stoc& dividend is similar to that for a cash dividend>. There are 12 /// shares outstandin!. "hat is the e7-dividend stoc& price#
$. .(1.(1 B. .(2.01 C. .(0./3 D. .(3.?3 '. .(?.@( De; price I .273 ///K=12 /// 1.(2> I .(2.01
AACSB: Analytic Bloom's: Analysis Difficulty: Basic *OC 7: "#$# Learning Ob ecti!e: "#$3 Section: "#%4 &o'ic: Stoc2 di!idend
17-?0
1/(. Gou o;n 1 /// shares of stoc& in $vondale Corporation. Gou ;ill receive an ?/-cent per share dividend in one year. :n t;o years $vondale ;ill pay a liquidatin! dividend of .8/ per share. The required return on $vondale stoc& is 18 percent. "hat ;ill your dividend income 1e this year if you use homemade dividends to create t;o equal annual dividend payments# $. .10 1?8 %. .10 @?/ C. .1? 337 D. .1@ 117 '. .(/ 8// P/ I =./.?/K1.18> J =.8/K1.18(> I .21.8? .21.8? I =DK1.18> J =DK1.18(>H D I .1@.117 Dividend income I 1 /// .1@.117 I .1@ 117
AACSB: Analytic Bloom's: Analysis Difficulty: /ntermediate *OC 7: "#$"0 Learning Ob ecti!e: "#$, Section: "#%, &o'ic: -omemade di!idend
17-?3
1/2. Gou o;n 1 /// shares of stoc& in $vondale Corporation. Gou ;ill receive a ./.?/ per share dividend in one year. :n t;o years $vondale ;ill pay a liquidatin! dividend of .20 per share. The required return on $vondale stoc& is 13 percent. Gou only ;ant .(// total in dividends in year one and accomplish this 1y usin! homemade dividends. "hat ;ill your total dividend amount 1e in year t;o# $. .17 @// %. .(/ 738 C. .20 3@3 D. .81 8/( '. .82 ?7? Dividends received in one year I 1 /// ./.?/ I .?// Price of stoc& in one year I .20K1.13 I .2/.17(8 Dum1er of shares purchased I =.?// - .(//>K.2/.17(8 I 1@.??07 shares Dividend in year t;o I .20 =1 /// J 1@.??07> I .20 3@3
AACSB: Analytic Bloom's: Analysis Difficulty: /ntermediate *OC 7: "#$". Learning Ob ecti!e: "#$, Section: "#%, &o'ic: -omemade di!idend
17-?7
1/8. %uilt Rite Corp. is evaluatin! an e7tra dividend versus a share repurchase. :n either case .0 0// ;ould 1e spent. Current earnin!s are ./.?/ per share and the stoc& currently sells for .22 per share. There are (0/ shares outstandin!. :!nore ta7es and other imperfections. Gou o;n one share of stoc& in this company. :f the company issues the dividend your total investment ;ill 1e ;orth <<<< as compared to <<<< if the company opts for a share repurchase. $. .11H .11 %. .11H .(( C. .11H .22 D. .(2H .22 E. .22H .22 Dividend per share I .0 0//K(0/ I .(( '7-dividend stoc& price I .22 - .(( I .11 9hareholder value ;ith dividend option I .(( J .11 I .22 9hares repurchased I .0 0//K.22 I 133.3337 9hareholder value ;ith repurchase I .22 9hareholder value if shares held I .22
AACSB: Analytic Bloom's: Analysis Difficulty: /ntermediate *OC 7: "#$"1 Learning Ob ecti!e: "#$0 Section: "#%1 &o'ic: Stoc2 re'urc)ase
17-??

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Chapter 17 - Dividends and Dividend Policy

Chapter 17 Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Multiple Choice Questions

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

$. .(1.(1 %. .(2.01 C. .(0./3 D. .(3.?3 '. .(?.@(

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 Dividends and Dividend Policy $ns;er Eey

Multiple Choice Questions

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy

Chapter 17 - Dividends and Dividend Policy