Ch 11 dividend policy exercise

Ch 11 Dividend Policy

1. Green Roof Motels has more cash on hand than its operations require. Thus, the firm has decided to pay out some of its earnings in the form of cash to its shareholders. What are these payments to shareholders called? A. cash dividends B. stock payments C. repurchases

D. payments-in-kind (以实物支付) E. stock splits

2. Lester's Frozen Foods just paid out $0.50 a share to its shareholders. The cash for these payments came from a large sale of assets, not from any earnings of the firm. What are these payments to shareholders called? A. dividends B. distributions C. repurchases

D. payments-in-kind E. stock splits

4. The common stock of Pierson Enterprises has historically had a high dividend yield and is expected to continue to do so. As a result, the majority of its shareholders are individuals and entities that are seeking a regular source of cash income. Most of these shareholders pay either no taxes or a relatively low amount of taxes. The fact that most of these shareholders have similar characteristics is referred to by which one of the following terms?

A. information content effect B. clientele effect

C. efficient markets hypothesis D. distribution effect E. market reaction effect

5. HJ Corporation has excess cash and has opted to buy some of its shares of outstanding common stock. What is this process of buying called? A. stock dividend B. stock split

C. stock repurchase E. stock repeal

6. Which one of the following involves a payment in shares by a stock issuer that increases the number of shares a shareholder owns but also decreases the value per share?

A. cash dividend

B. stock dividend C. stock repurchase D. stock split

E. reverse stock split

7. Which one of the following statements related to cash dividends is correct? A. Extra cash dividends cannot be repeated in the future. B. A dividend is never a liability until it has been declared.

C. If a firm has paid regular quarterly dividends for at least five consecutive years it is legally obligated to continue doing so.

D. Regular cash dividends reduce paid-in capital.

E. The dividend yield expresses the annual dividend as a percentage of net income.

8. Which of the following tend to keep dividends low? I. shareholders desiring current income

II. terms contained in bond indenture agreements

III. the desire to maintain constant dividends over time IV. flotation costs A. II and III only B. I and IV only

C. II, III, and IV only D. I, II, and III only E. I, II, III, and IV

9. Which one of the following statements is correct?

A. Firms prefer to cut dividend payments rather than borrow money to fund a short-term cash need.

B. Share repurchases tend to increase agency costs.

C. Maintaining a steady dividend is a key goal of most dividend-paying firms. D. Tax rates are the key factor in determining a firm's dividend policy. E. Stock prices tend to ignore expected changes in dividend payments.

10. Stock splits can be used to:

A. adjust the market price of a stock such that it falls within a preferred trading range.

B. decrease the excess cash held by a firm thereby lowering agency costs.

C. increase both the number of shares outstanding and the market price per share. D. increase the total equity of a firm. E. adjust the debt-equity ratio.

11. 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? A． liquidating dividend B． stock split

C． reverse stock split D． small stock dividend E． special cash dividend

12. 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.

13. Stock repurchase programs appear to becoming more popular with business firms. Explain the appeal of these programs as compared to that of cash dividend programs from the stock issuer's point of view.

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

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