Question 1

Explain the meaning of the dividend clientele effect and why it is important.

Accepted Answer

There are certain groups that prefer low...

Question 2

Sligo Minerals stock is currently trading at $6 a share. The firm believes its primary clientele can afford to spend between $1,500 and $2,000 to purchase a round lot of 100 shares. The firm should consider a:

Accepted Answer

A)  reverse stock split.
B)  liquidating dividend.
C)  stock dividend.
D)  stock split.
E)  special dividend.F) B) and D)
G) A) and E)

Question 3

East Coast Marina has 220,000 shares of stock outstanding. The current market value of the firm is $18.92 million. The company has retained earnings of $3.8 million, paid in surplus of $6.7 million, and a common stock account value of $220,000. The company is planning a 3-for-2 stock split. What will the market price per share be after the split?

Accepted Answer

A)  $28.67
B)  $57.33
C)  $66.67
D)  $108.00
E)  $129.00F) C) and E)
G) None of the above

Question 4

The Green Fiddle has declared an $8 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Green Fiddle stock sells for $71.50 per share, and the stock is about to go ex-dividend. What will the ex-dividend price be?

Accepted Answer

A)  $64.70
B)  $67.90
C)  $78.30
D)  $79.50
E)  $82.23F) A) and E)
G) B) and D)

Question 5

Which two of the following are the best justifications for a reverse stock split?
I. combine a reverse stock split with a stock repurchase to enable a firm to go dark
II. increase the respectability of the stock
III. avoid delisting
IV. reduce transaction costs for shareholders

Accepted Answer

A)  I and II only
B)  I and III only
C)  II and III only
D)  II and IV only
E)  III and IV onlyF) A) and B)
G) A) and C)

Question 6

Which of the following shareholders tend to favor a high dividend policy?
I. retired individuals
II. endowment funds
III. corporate investors
IV. investors with high dividend tax rates but low capital gains tax rates

Accepted Answer

A)  I and III only
B)  II and IV only
C)  I, II, and III only
D)  II, III, and IV only
E)  I, II, III, and IVF) C) and D)
G) A) and E)

Question 7

On July 7, you purchased 500 shares of Wagoneer, Inc. stock for $21 a share. On August 1, you sold 200 shares of this stock for $28 a share. You sold an additional 100 shares on August 17 at a price of $25 a share. The company declared a $0.95 per share dividend on August 4 to holders of record as of Wednesday, August 15. This dividend is payable on September 1. How much dividend income will you receive on September 1 as a result of your ownership of Wagoneer stock?

Accepted Answer

A)  $0
B)  $190
C)  $285
D)  $360
E)  $475F) C) and D)
G) B) and D)

Question 8

Val's Marina Supply has 3,500 shares of stock outstanding with a par value of $1.00 per share and a market value of $19 per share. The balance sheet shows $3,500 in the common stock account, $24,000 in the capital in excess of par account, and $31,400 in the retained earnings account. The firm just announced a 100 percent stock dividend. What is the value of the capital in excess of par account after the dividend?

Accepted Answer

A)  $0
B)  $20,500
C)  $24,000
D)  $55,500
E)  $87,000F) A) and B)
G) D) and E)

Question 9

The owners' equity accounts for Blueswell Industries are shown here:  If Blueswell Industries declares a 1-for-5 reverse stock split, there will be ____ shares outstanding at a par value of _____ per share.

Accepted Answer

A)  1,800; $1.00
B)  1,800; $5.00
C)  9,000; $5.00
D)  45,000; $0.20
E)  45,000; $1.00F) A) and E)
G) None of the above

Question 10

You own 1,000 shares of stock in Avondale Corporation. You will receive an 80-cent per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $40 per share. The required return on Avondale stock is 14 percent. What will your dividend income be this year if you use homemade dividends to create two equal annual dividend payments?

Accepted Answer

A)  $15,184
B)  $15,980
C)  $18,667
D)  $19,117
E)  $20,400F) C) and D)
G) B) and E) D

Question 11

The Mining Co. has 20,000 shares of stock outstanding. The current market value of the firm is $328,000. The company has retained earnings of $27,000, capital in excess of par value of $160,000, and a common stock account value of $20,000. The company is planning a 2-for-5 reverse stock split. What will the par value per share be after the split?

Accepted Answer

A)  $0.15
B)  $0.20
C)  $1.00
D)  $2.50
E)  $5.00F) C) and D)
G) A) and C) D

Question 12

Della's Pool Halls has 12,000 shares of stock outstanding with a par value of $1 per share and a market price of $39 a share. The firm just announced a 4-for-3 stock split. How many shares of stock will be outstanding after the split?

Accepted Answer

A)  9,000 shares
B)  10,000 shares
C)  12,000 shares
D)  14,600 shares
E)  16,000 sharesF) A) and E)
G) None of the above

Question 13

A small stock dividend is defined as a stock dividend of less than _____ percent.

Accepted Answer

A)  10 to 15
B)  15 to 20
C)  20 to 25
D)  25 to 30
E)  30 to 35F) A) and E)
G) None of the above

Question 14

Steve owns 3,000 shares of NOP, Inc. stock which he purchased six years ago at a price of $22 a share. Today, these shares are selling for $68 each. Assume the current tax laws are such that Steve is subject to a tax rate of 25 percent on both his dividend income and his capital gains. From Steve's point of view, a stock repurchase today: (Ignore costs)

Accepted Answer

A)  is equivalent to a cash dividend in all respects.
B)  is more desirable than a cash dividend in respect to taxes.
C)  will result in the same tax liability as an equivalent cash dividend.
D)  is more highly taxed than a cash dividend.
E)  is totally unacceptable to him.F) A) and D)
G) B) and C)

Question 15

Purvis Lawn Products has 18,000 shares of stock outstanding at a market price of $5.50 a share. What will the market price per share be if the company does a 1-for-4 reverse stock split?

Accepted Answer

A)  $1.38
B)  $5.50
C)  $11.00
D)  $16.50
E)  $22.00F) A) and B)
G) C) and D)

Question 16

Western Mountain Water has 11,000 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $135,000. The balance sheet shows a capital in excess of par value account balance of $68,000 and retained earnings of $49,000. The company just announced a 2-for-1 stock split. What will the capital in excess of par value account balance be after the split?

Accepted Answer

A)  $45,333
B)  $54,667
C)  $68,000
D)  $86,667
E)  $102,000F) A) and E)
G) B) and D) C

Question 17

The ex-dividend date is defined as _____ business day(s)  before the date of record.

Accepted Answer

A)  1
B)  2
C)  3
D)  5
E)  10F) A) and B)
G) A) and C)

Question 18

Explain how cash dividends affect individual shareholders differently than an equal amount of funds spent on a repurchase.

Accepted Answer

Dividends are payable to all shareholder...

Question 19

Which one of the following is a result of a small stock dividend?

Accepted Answer

A)  increase in retained earnings
B)  decrease in total owner's equity
C)  decrease in cash
D)  decrease in capital in excess of par value
E)  increase in common stockF) A) and C)
G) B) and D)

Question 20

Which of the following balance sheet accounts are affected by a small stock dividend?
I. cash
II. common stock
III. retained earnings
IV. capital in excess of par value

Accepted Answer

A)  I and III only
B)  II and III only
C)  II and IV only
D)  II, III, and IV only
E)  I, II, III, and IVF) A) and E)
G) A) and C)

Exam 17: Dividends and Dividend Policy

Explain the meaning of the dividend clientele effect and why it is important.

Correct Answer
verified
There are certain groups that prefer low...
View Answer

Sligo Minerals stock is currently trading at $6 a share. The firm believes its primary clientele can afford to spend between $1,500 and $2,000 to purchase a round lot of 100 shares. The firm should consider a:

Correct Answer
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Correct Answer
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Correct Answer
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Which two of the following are the best justifications for a reverse stock split? I. combine a reverse stock split with a stock repurchase to enable a firm to go dark II. increase the respectability of the stock III. avoid delisting IV. reduce transaction costs for shareholders

Correct Answer
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Which of the following shareholders tend to favor a high dividend policy? I. retired individuals II. endowment funds III. corporate investors IV. investors with high dividend tax rates but low capital gains tax rates

Correct Answer
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Correct Answer
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Correct Answer
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The owners' equity accounts for Blueswell Industries are shown here: If Blueswell Industries declares a 1-for-5 reverse stock split, there will be shares outstanding at a par value of _ per share.

Correct Answer
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Correct Answer
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D

Correct Answer
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D

Della's Pool Halls has 12,000 shares of stock outstanding with a par value of $1 per share and a market price of $39 a share. The firm just announced a 4-for-3 stock split. How many shares of stock will be outstanding after the split?

Correct Answer
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A small stock dividend is defined as a stock dividend of less than _____ percent.

Correct Answer
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Correct Answer
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Purvis Lawn Products has 18,000 shares of stock outstanding at a market price of $5.50 a share. What will the market price per share be if the company does a 1-for-4 reverse stock split?

Correct Answer
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Correct Answer
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C

The ex-dividend date is defined as _____ business day(s) before the date of record.

Correct Answer
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Explain how cash dividends affect individual shareholders differently than an equal amount of funds spent on a repurchase.

Correct Answer
verified
Dividends are payable to all shareholder...
View Answer

Which one of the following is a result of a small stock dividend?

Correct Answer
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Which of the following balance sheet accounts are affected by a small stock dividend? I. cash II. common stock III. retained earnings IV. capital in excess of par value

Correct Answer
verified

Exam 17: Dividends and Dividend Policy

Explain the meaning of the dividend clientele effect and why it is important.

Correct AnswerverifiedThere are certain groups that prefer low...View AnswerShow Answer

Sligo Minerals stock is currently trading at $6 a share. The firm believes its primary clientele can afford to spend between $1,500 and $2,000 to purchase a round lot of 100 shares. The firm should consider a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which two of the following are the best justifications for a reverse stock split? I. combine a reverse stock split with a stock repurchase to enable a firm to go dark II. increase the respectability of the stock III. avoid delisting IV. reduce transaction costs for shareholders

Correct AnswerverifiedShow Answer

Which of the following shareholders tend to favor a high dividend policy? I. retired individuals II. endowment funds III. corporate investors IV. investors with high dividend tax rates but low capital gains tax rates

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The owners' equity accounts for Blueswell Industries are shown here: If Blueswell Industries declares a 1-for-5 reverse stock split, there will be ____ shares outstanding at a par value of _____ per share.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedD

Correct AnswerverifiedD

Della's Pool Halls has 12,000 shares of stock outstanding with a par value of $1 per share and a market price of $39 a share. The firm just announced a 4-for-3 stock split. How many shares of stock will be outstanding after the split?

Correct AnswerverifiedShow Answer

A small stock dividend is defined as a stock dividend of less than _____ percent.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Purvis Lawn Products has 18,000 shares of stock outstanding at a market price of $5.50 a share. What will the market price per share be if the company does a 1-for-4 reverse stock split?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedC

The ex-dividend date is defined as _____ business day(s) before the date of record.

Correct AnswerverifiedShow Answer

Explain how cash dividends affect individual shareholders differently than an equal amount of funds spent on a repurchase.

Correct AnswerverifiedDividends are payable to all shareholder...View AnswerShow Answer

Which one of the following is a result of a small stock dividend?

Correct AnswerverifiedShow Answer

Which of the following balance sheet accounts are affected by a small stock dividend? I. cash II. common stock III. retained earnings IV. capital in excess of par value

Correct AnswerverifiedShow Answer

Correct Answer
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There are certain groups that prefer low...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The owners' equity accounts for Blueswell Industries are shown here: If Blueswell Industries declares a 1-for-5 reverse stock split, there will be shares outstanding at a par value of _ per share.

Correct Answer
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Correct Answer
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D

Correct Answer
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D

Correct Answer
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Correct Answer
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Correct Answer
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C

Correct Answer
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Correct Answer
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Dividends are payable to all shareholder...
View Answer

Correct Answer
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Correct Answer
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