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Exam 17: Dividends and Payout Policy

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Question 51

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What is the information content effect?

A) any type of new information that causes a firm to cease paying dividends
B) any news announcement that was anticipated and thus produces no reaction from investors
C) the primary contributing data that helps directors determine the amount of a particular dividend payment
D) any type of reaction from a shareholder in response to a news announcement related to the stock issuer
E) the financial market's reaction to a change in the amount of a firm's dividend

F) B) and E)
G) C) and D)

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Question 52

Multiple Choice

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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.

A) 1,800; $1.00
B) 1,800; $5.00
C) 9,000; $5.00
D) 45,000; $0.20
E) 45,000; $1.00

F) None of the above
G) All of the above

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Question 53

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Al owns 800 shares of The Good Life Co.The company recently issued a statement that it will pay a dividend per share of $0.55 this year and a $0.60 per share dividend next year.Al does not want any dividend income this year but does want as much dividend income as possible next year.Al earns 9 percent on his investments.Ignoring taxes,what will Al's total homemade dividend be next year?

Dividend payments are mailed on which one of the following dates?

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 $40,000.The company is planning a 2-for-5 reverse stock split.What will the par value per share be after the split?

Verbal Communications,Inc.,has 14,000 shares of stock outstanding with a par value of $1 per share and a market value of $32 per share.The firm just announced a 100 percent stock dividend.What is the market value per share after the dividend?

Stock splits can be used to:

A stock repurchase program:

The last date on which you can purchase shares of stock and still receive the dividend is the date which is _____ business days prior to the date of record.

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

Which one of the following dates is used to determine the names of shareholders who will receive a dividend payment?

If you ignore taxes and costs,a stock repurchase will: I.reduce the total assets of a firm. II.decrease the earnings per share. III.reduce the PE ratio more so than an equivalent stock dividend. IV.reduce the total equity of a firm.

You are the CFO of a non-dividend paying firm that currently has excess cash reserves.You are preparing for an internal management meeting where dividends are on the agenda.You know that the CEO favors the commencement of a dividend program.You,however,oppose any dividend plan at this time.Write a good argument that you can use in the meeting to support your position.

Which one of the following refers to the ability of shareholders to undo a firm's dividend policy and create an alternative dividend policy by reinvesting dividends or selling shares of stock?

Revol-Tech is a technology firm with excellent growth prospects.The firm wishes to do something to acknowledge the loyalty of the shareholders but needs all of its available cash to fund the firm's rapid growth.The market price of the stock is currently trading at the upper end of its preferred trading range.The firm is most apt to consider which one of the following in this situation?

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?

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

Tucker's National Distributing has a current market value of equity of $10,665.Currently,the firm has excess cash of $640,total assets of $22,400,net income of $3,210,and 500 shares of stock outstanding.Tucker's is going to use all of its excess cash to repurchase shares of stock.What will the stock price per share be after the stock repurchase is completed?

Blasco's has a market value equal to its book value.Currently,the firm has excess cash of $1,332,other assets of $11,674,and equity of $7,200.The firm has 1,200 shares of stock outstanding and net income of $838.Blasco's has decided to spend one-third of its excess cash on a share repurchase program.How many shares of stock will be outstanding after the stock repurchase is completed?

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