1. Dividend-payout ratio is defined as:
a. The dividend yield plus the capital gains yield.
b. Dividends per share divided by earnings per share.
c. Dividends per share divided by income per share.
d. Dividends per share divided by current price per share.
2. Which of the following statements about stock splits is incorrect?
a. Market price per share is reduced after the split.
b. The number of outstanding shares is increased.
c. Retained earnings are changed.
d. Proportional ownership is unchanged.
3. When is the ex-dividend date if the holder of record date is April 13, 2012?
a. April 15
b. April 14
c. April 11
d. April 12
4. On January 7, a firm declared a $0.25-per-share quarterly dividend payable March 3 to shareholders of record on Friday, February 8. What is the latest date by which you could purchase the stock and still receive the recently declared dividend?
a. March 1
b. February 5
c. February 6
d. February 7
5. Which of following has a negative impact on the share price?
a. Unexpected dividend increase
b. Unexpected dividend initiation
c. Unexpected dividend decrease
d. None of the above
6. Which of the following is an M&M assumption?
a. There are personal taxes.
b. Not all firms maximize value.
c. There is no debt.
d. Markets are imperfect.
7. What is the market value of equity if next-period cash flow from operations is $400,000 and investment is $200,000, respectively, and k = 15%?
8. A Firm's target dividend is $4.50 and the prior-period dividend is $3. What is the change in dividends if the firm adjusts dividends immediately?
9. Suppose that the pre-tax holding period returns on two stocks are the same. Stock A has a low dividend payout policy and stock B has a high dividend payout policy. If you are an individual in a high marginal tax bracket and do not intend to sell the stocks during the holding period, which stock should you purchase?
a. A because it will have a higher after-tax return than stock B
b. B because it will have a higher after-tax return than stock A
c. A or B (indifferent) because the after-tax returns on stocks A and B will be the same
d. It is impossible to determine which stock to purchase given the information available.
10. Which of the following arguments supports the relevance of dividends?
a. Informational release
b. Reduction of uncertainty
c. Some investors’ preference for current income
d. All of the above
11. Which of the following statements regarding motivation for a stock repurchase is incorrect?
a. Firms could be privatized using stock repurchases.
b. Investors consider a firm’s stock overvalued when a stock repurchase occurs.
c. Firms use stock repurchases to move capital structure back to some optimum level.
d. Stock repurchases are sometimes used to satisfy dissident shareholders.
12. If a firm repurchased 50 percent of its outstanding common stock, the result would be
a. A decline in EPS.
b. An increase in retained earnings.
c. A decrease in total assets.
d. A decrease in the number of shareholders by 50 percent.