Question 1

If a firm adopts a residual distribution policy, distributions are determined as a residual after funding the capital budget.Therefore, the better the firm's investment opportunities, the lower its payout ratio should be.

Accepted Answer

True

Question 2

Which of the following statements about dividend policies is correct?

Accepted Answer

D

Question 3

Stock dividends and stock splits should, at least conceptually, have the same effect on shareholders' wealth.

Accepted Answer

True

Question 4

Poff Industries' stock currently sells for $120 a share.You own 100 shares of the stock.The company is contemplating a 2-for-1 stock split.Which of the following best describes what your position will be after such a split takes place?

Accepted Answer

The answer of Poff Industries' stock currently sells for $120...

Question 5

If management wants to maximize its stock price, and if it believes that the dividend irrelevance theory is correct, then it must adhere to the residual distribution policy.

Accepted Answer

The answer of If management wants to maximize its stock...

Question 6

Which of the following should not influence a firm's dividend policy decision?

Accepted Answer

The answer of Which of the following should not influence...

Question 7

The announcement of an increase in the cash dividend should, according to MM, lead to an increase in the price of the firm's stock.

Accepted Answer

The answer of The announcement of an increase in the...

Question 8

Myron Gordon and John Lintner believe that the required return on equity increases as the dividend payout ratio is decreased.Their argument is based on the assumption that

Accepted Answer

The answer of Myron Gordon and John Lintner believe that...

Question 9

If the shape of the curve depicting a firm's WACC versus its debt ratio is more like a sharp "V", as opposed to a shallow "U", it will be easier for the firm to maintain a steady dividend in the face of varying investment opportunities or earnings from year to year.

Accepted Answer

The answer of If the shape of the curve depicting...

Question 10

Underlying the dividend irrelevance theory proposed by Miller and Modigliani is their argument that the value of the firm is determined only by its basic earning power and its business risk.

Accepted Answer

The answer of Underlying the dividend irrelevance theory proposed by...

Question 11

In the real world, dividends

Accepted Answer

The answer of In the real world, dividends
...

Question 12

Even if a stock split has no information content, and even if the dividend per share adjusted for the split is not increased, there can still be a real benefit (i.e., a higher value for shareholders)from such a split, but any such benefit is probably small.

Accepted Answer

The answer of Even if a stock split has no...

Question 13

If the information content, or signaling, hypothesis is correct, then changes in dividend policy can have an important effect on the firm's value and capital costs.

Accepted Answer

The answer of If the information content, or signaling, hypothesis...

Question 14

A reverse split reduces the number of shares outstanding.

Accepted Answer

The answer of A reverse split reduces the number of...

Question 15

MM's dividend irrelevance theory says that while dividend policy does not affect a firm's value, it can affect the cost of capital.

Accepted Answer

The answer of MM's dividend irrelevance theory says that while...

Question 16

The optimal distribution policy strikes that balance between current dividends and capital gains that maximizes the firm's stock price.

Accepted Answer

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Question 17

Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?

Accepted Answer

The answer of Which of the following would be most...

Question 18

One implication of the bird-in-the-hand theory of dividends is that a given reduction in dividend yield must be offset by a more than proportionate increase in growth in order to keep a firm's required return constant, other things held constant.

Accepted Answer

The answer of One implication of the bird-in-the-hand theory of...

Question 19

If investors prefer firms that retain most of their earnings, then a firm that wants to maximize its stock price should set a low payout ratio.

Accepted Answer

The answer of If investors prefer firms that retain most...

Question 20

The dividend irrelevance theory, proposed by Miller and Modigliani, says that provided a firm pays at least some dividends, how much it pays does not affect either its cost of capital or its stock price.

Accepted Answer

The answer of The dividend irrelevance theory, proposed by Miller...

Quiz 14: Distributions to shareholders: dividends and repurchases