CORP 2 - Chapter 18 Flashcards
(43 cards)
According to the “marginal principle of retained earnings,” dividends are
A. the active variable.
B. the passive variable.
C. not usually paid.
D. a certain fixed percentage of earnings
According to the “marginal principle of retained earnings,” dividends are
B. the passive variable.
The major, overall argument against the “marginal principle of retained earnings” is
A. the uncertainty surrounding capital investment projects.
B. the lack of ability to adequately measure corporate investment returns.
C. the diversity of shareholders and their potential investment returns.
D. its failure to consider shareholder preferences
The major, overall argument against the “marginal principle of retained earnings” is
D. its failure to consider shareholder preferences
A major desire of shareholders regarding dividend policy is
A. frequent stock dividends.
B. dividend stability.
C. high payouts when earnings are up and lower payouts when earnings are down.
D. payment of dividends at frequent intervals.
A major desire of shareholders regarding dividend policy is
B. dividend stability.
A stock dividend will
A. increase the total value of shareholders’ equity.
B. decrease the total value of shareholders’ equity.
C. not affect the total value of shareholders’ equity.
D. change the total value of shareholders’ equity but the direction cannot be determined
unless the market price and par value is known.
A stock dividend will
C. not affect the total value of shareholders’ equity.
A corporation may wish to repurchase some of its shares in the market for all the following reasons except
A. this action might maximize aftertax benefit to shareholders.
B. the corporation’s executives will financially benefit if the shares are resold later at a substantial profit.
C. it can stabilize or increase the market price of the stock.
D. the stock may be needed for an employee compensation plan
A corporation may wish to repurchase some of its shares in the market for all the following reasons except
B. the corporation’s executives will financially benefit if the shares are resold later at a substantial profit.
Shareholders may prefer dividends to reinvestment by the firm
A. because dividends resolve some uncertainty.
B. because dividend payments have an information content.
C. because investors may prefer current cash to future cash.
D. all of the other answers are correct.
Shareholders may prefer dividends to reinvestment by the firm
D. all of the other answers are correct.
Inflation can affect dividend payouts in that
A. higher interest rates resulting from inflation have left more earnings available for dividends.
B. inflation leads investors to demand higher payouts.
C. corporations are hesitant to pay dividends from inflation-caused “inventory profits.”
D. dividend payouts decrease due to slower earnings growth in an inflationary economy.
Inflation can affect dividend payouts in that
C. corporations are hesitant to pay dividends from inflation-caused “inventory profits.”
The primary purpose of a stock split is to
A. indicate the firm’s desire to retain funds.
B. increase the investor’s overall wealth.
C. reduce the threat of a takeover by creating more shares.
D. bring the share price to a lower trading range.
The primary purpose of a stock split is to
.
D. bring the share price to a lower trading range.
Which of the following balance sheet accounts will be affected by a stock dividend but not by a stock split? A. retained earnings B. cash C. common stock D. dividends-in-arrears
Which of the following balance sheet accounts will be affected by a stock dividend but not by a
stock split?
A. retained earnings
The residual theory of dividend policy asserts that
A. sufficient dividends are paid to maintain a stable total dividend payment with any residual invested internally by the firm.
B. sufficient dividends are paid to maintain a stable dividend payout ratio with any residual invested internally by the firm.
C. dividends are paid out of the residual remaining after internal investments by the firm.
D. dividend payments are adjusted to maintain dividends at a constant percentage of total
cash flows.
The residual theory of dividend policy asserts that
C. dividends are paid out of the residual remaining after internal investments by the firm.
Which of the following generally does not influence the dividend policy of the firm?
A. cash position of the firm
B. desire for control
C. payables vs. receivables
D. investor’s expectations of the future based on dividend policy
Which of the following generally does not influence the dividend policy of the firm?
C. payables vs. receivables
A 2-for-1 stock split is declared. In this case which of following statements is true? A. the cash account declines B. the common stock account rises C. the retained earnings fall D. the number of common shares increases
A 2-for-1 stock split is declared. In this case which of following statements is true?
D. the number of common shares increases
The Clientele effect is concerned with A. investor behaviour B. the relationship between the stockbroker and hi/het client C. the stability of dividends none of the above
The Clientele effect is concerned with
A. investor behaviour
A firm may repurchase stock in the market because
A. it will increase the shareholder’s wealth.
B. the firm has inadequate capital budgeting alternatives.
C. it provides positive informational content.
D. all of the other answers are correct
A firm may repurchase stock in the market because
D. all of the other answers are correct
In Stage II (growth stage), sales and returns on assets will be growing at increasing rates.
Which of the following is true?
A. earnings are now available for moderate dividends
B. stock dividends (additional shares) are quite common
C. acquisition of new assets will be stable
D. the payout ratio will be close to 50% by now
In Stage II (growth stage), sales and returns on assets will be growing at increasing rates.
Which of the following is true?
B. stock dividends (additional shares) are quite common
The marginal principle of retained earnings means that each potential project to be financed
by retained earnings must
A. provide a higher rate of return than the shareholders can achieve after paying taxes on the distributed dividends.
B. yield a return equal to or greater than the marginal cost of capital.
C. provide enough return to pay the corporation’s marginal tax rate.
D. have an internal rate of return greater than the corporate growth rate of dividends
The marginal principle of retained earnings means that each potential project to be financed by retained earnings must
A. provide a higher rate of return than the shareholders can achieve after paying taxes on the distributed dividends.
In the initial stage (Stage I), the corporation
A. has a product yet to be accepted in the marketplace.
B. anticipates rapid growth in sales and earnings.
C. needs all its earnings for reinvestment in new assets.
D. all of the other answers are correct
In the initial stage (Stage I), the corporation.
D. all of the other answers are correct
Management may repurchase shares of stock in the market
A. to buy stock they feel is considerably underpriced.
B. for employee stock options.
C. to use in a merger.
D. all of the other answers are correct
Management may repurchase shares of stock in the market
D. all of the other answers are correct
Which of the following does not affect a company’s dividend policy?
A. legal rules concerning capital impairment
B. the efficient market hypothesis
C. access to capital markets
D. tax position of shareholders
Which of the following does not affect a company’s dividend policy?
B. the efficient market hypothesis
A stock dividend will
A. increase the value of a share of stock.
B. decrease the common stock account.
C. decrease the retained earnings account.
D. none of the other answers are correct
A stock dividend will
C. decrease the retained earnings account.
Some dividend reinvestment plans allow the shareholder to purchase shares of stock
A. from the company’s unissued shares.
B. in the market through the company’s transfer agent.
C. at a discount from the market price.
D. all of the other answers are correct
Some dividend reinvestment plans allow the shareholder to purchase shares of stock
D. all of the other answers are correct
The “clientele effect” assumes that
A. taxes affect shareholder dividend preferences.
B. capital gains taxes are equal to taxes on dividends.
C. investors prefer dividends over capital gains regardless of their marginal tax bracket.
D. investors are indifferent between stable dividends and irregular dividends
The “clientele effect” assumes that
A. taxes affect shareholder dividend preferences.
Which of the following is not true about the life cycle growth and dividend policy?
A. in the maturity stage, a firm usually pays moderate to high dividends
B. in the development stage, a firm usually pays stock dividends and some low cash dividends
C. in the expansion stage, a firm pays low to medium cash dividends and occasionally may
have stock splits
D. in the growth stage, a firm pays stock dividends
Which of the following is not true about the life cycle growth and dividend policy?
B. in the development stage, a firm usually pays stock dividends and some low cash dividends
CBA Inc has 250,000 shares outstanding. The shares were issued for $14. The stock is currently selling for $34. CBA has $5,000,000 in retained earnings and has declared a stock dividend that will increase the number of outstanding shares by 6%. What will be the common stock account after the stock split? A. $510,000 B. $3,500,000 C. $4,010,000 D. $8,500,000
CBA Inc has 250,000 shares outstanding. The shares were issued for $14. The stock is currently selling for $34. CBA has $5,000,000 in retained earnings and has declared a stock dividend that will increase the number of outstanding shares by 6%. What will be the common stock account after the stock split?
C. $4,010,000
