Which type of dividend carries a credit for income tax paid by the company?

A. Special dividend
B. Cum dividend
C. Liquidating dividend
D. Franked dividend

N Ltd shares have a closing price of $10.85 on 8 November 2005. On the next day they will begin trading
on an ex-dividend basis. The dividend is 40 cents per share fully franked at the company tax rate of 30 per
cent. What is the expected ex-dividend share price?
10.85-0.40-franked div(pake rumus)
Ex fully unfranked: 10.85-0.40=10.45
A. $10.82
B. $10.20
C. $10.28
D. The share price cannot be calculated as sufficient information is not available.

The amount of dividend that can be paid to shareholders:

A. depends on how profitable a business is and on the current assets of the

business.
B. is limited to the amount of current period profits.
C. is limited to the amount of current period profits and accumulated profits (RE).
D. is limited to the amount of current period profits, accumulated profits and paid
up capital<-when share is on premium (issue shares above market price).

To be entitled to receive a dividend, an investor must purchase shares:

A. before the ex-dividend date.

B. after the ex-dividend date.
C. after the ex-dividend date but before the 'books closing' date.
D. before the ex-dividend date but before the 'books closing' date.

Announcement – ex div (1 month)

Ex div – books close (4 days)

A pure residual dividend policy requires:

A. that dividends be paid on a constant year-to-year basis.

B. dividends to be paid only if profits are in excess of investment needs.
C. extra finance to be raised externally to meet dividend needs.
D. franked dividends to be paid if a positive balance exists in the franking
account.

A residual dividend policy differs from a stable dividend policy in respect to which of the following?
A. Dividends can only be stable under a residual policy if profits are constant.
B. Dividends under the residual policy method fluctuate from year to year
depending on profits.
C. Dividends are a function of profits under the stable policy method but are a
function of investment needs under the residual policy method.
D. Dividends are a function of long-term profits under the stable policy method
but are a function of investment needs under the residual policy method.

A constant payout policy for dividends involves:

A. a constant total amount of dividends paid each year.

B. a constant ratio of dividends to profit and a constant amount of dividends paid
from year to year.
C. consideration given to profitable investment proposals.
D. a constant ratio of dividends to profit but not a constant amount of dividends
paid from year to year.

A reason why management may have a long-term dividend payout ratio is that:

A. investors have a long-term investment horizon.

B. the present value of taxes paid on future dividend income is less than the
present value of taxes paid on current dividend income.
C. management views dividends as a function of sustainable profits.
D. it assists management in long-term planning.

In a perfect market, dividend policy has no effect on shareholders' wealth because:

A. transactions are costless.

B. any cash paid out as dividends must be replaced by issuing additional shares.
C. directors fix share prices during dividend announcements.
D. any cash paid out as dividends can be costlessly replaced by issuing new
shares.

Which of the following is an example of share buybacks?

A. Equal access buybacks

B. Selective buybacks
C. On-market buybacks
D. All of the given options are examples of share buybacks.

Under the imputation tax system used in Australia which of the following statements is correct?
A. Non-resident shareholders receive a credit for the income tax paid by a
company on its taxable income.
B. Investors have no say in dividend policy.
C. Resident shareholders receive a credit for the income tax paid by a company
on its taxable income.
D. Investors in high marginal tax brackets would pay a premium for shares of
companies that pay no dividends.

A characteristic of franked dividends that differentiates them from unfranked dividends is:

A. franked dividends carry tax credits related to the income tax paid by the
company.
B. the gross amount of dividends paid is different.
C. franked dividends are indexed for inflation, while unfranked dividends are not.
D. the amount of payment received by the shareholder from the company.

One reason that may explain why dividend policy is relevant to investors is that:

A. shareholders are indifferent between dividend income and capital gains

income.
B. valuable inside information is conveyed by announcements of dividend
changes. (relevant div policies)
C. investors, in general, prefer investments in companies that pay dividends.
D. investors do not trust dividend projections.

If managers commit themselves to paying out cash in excess of investment needs as dividends rather
than retaining it within the company, shareholders' wealth may increase because:

A. it indicates that management will not waste resources.

B. shareholders prefer dividends now rather than in the future.
C. it reflects badly on future investments.
D. it reflects positively on future investments.

A reason why shareholders may prefer dividend income to expected capital gains is because:

A. the effective rate of capital gains tax is likely to be less than an investor’s
marginal income tax.
B. shareholders who require current income can always sell a portion of their
portfolio.
C. transaction costs such as brokerage fees make selling shares less attractive.
D. they distrust future projections.

Assume the current share price of Company A is $4.50 and on the following day these shares will begin
trading ex-dividend. If the dividend is 40 cents per share fully franked, and the company tax rate is 30 per
cent, what is the expected ex-dividend share price?
 (0,40*30%)/(1-30%)+0,40)-4,50
(4.5-(0/4+(0.4*30%/1-30%)
A. $4.10
B. $4.50
C. $3.93
D. $4.03

If taxes on dividend income and capital gains income were a major determinant of dividend payout ratio
policies, then under the classical tax system we would expect:

A. there to be many companies with large dividend payout ratios.

B. investors on high marginal tax rates to prefer companies that pay dividends.
C. a target payout ratio large enough to warrant new share issues to finance
expenditures. (these two situations are unrelated)
D. tax-exempt investors -> gets tax credit, such as super funds, to invest in
companies with high dividend payout ratios.

The dividend imputation system has encouraged Australian companies to adopt higher dividend payout
ratios because:

A. tax on dividend income compared to capital gains is effectively lower for

resident shareholders.
B. tax on dividend income compared to capital gains is effectively higher for
resident shareholders.
C. tax on dividend income compared to capital gains is effectively no different for
resident shareholders.
D. resident companies now have higher after-tax profits from which to pay
dividends.

Which of the following is an unlikely reason as to why a company would not pay a high franked dividend
payout ratio?

A. Shareholders may be tax-exempt.

B. It is running short of cash to finance new investments.
C. Shareholders may not be residents.
D. Shareholders are on the same marginal tax rate as the company.

Which statement is true regarding dividend reinvestment plans?

A. They were introduced after the introduction of the imputation system.

B. They do not allow tax credits to be transferred to shareholders.
C. They allow shareholders to purchase additional shares without incurring
transaction costs.
D. They allow shareholders to purchase additional shares without a discount.
A share buyback: (companies buyback shares to stop dpr from further increasing)

A. could be used by management to signal that shares are not overvalued. (yg
bener kl not undervalued)
B. is an indication that the company has good investment opportunities, thus
leading to an increase in the share price. (it is a signal, not indication, share price
increases because of financial performance)
C. has the same tax treatment as dividend.
D. is none of the given options.

Which of the following statements is true?

A. Announcements of dividend reinvestment plans (right issue), prior to the

introduction of imputation, were associated with a significantly positive market
response. (also makes sense)
B. Announcements of dividend reinvestment plans, after the introduction of
imputation, were associated with a significantly positive market response.
C. Dividend election schemes were more popular prior to the introduction of
imputation.
D. None of the given options.