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Exam 13: Payout Policy

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Question 21

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Gordon's "bird-in-the-hand" argument suggests that ________.

A) dividends are irrelevant
B) firms should have a 100 percent payout policy
C) shareholders are risk averse and attach less risk to current dividends
D) the market value of a firm is unaffected by dividend policy

E) A) and B)
F) All of the above

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Question 22

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According to ________,investors' demands for dividends fluctuate over time.

A) the catering theory
B) Modigliani and Miller theory
C) the residual theory of dividends
D) CAPM theory

E) A) and D)
F) C) and D)

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Question 23

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The problem with a constant-payout-ratio dividend policy from the shareholders' perspective is that ________.

The purpose of a reverse stock split is to ________.

A firm has current after-tax earnings of $1,000,000 and has declared a cash dividend of $400,000.The firm's dividend payout ratio is ________.

An advantage of a ________ is that it avoids giving shareholders false hopes.

The representative theory of dividends,as espoused by Modigliani and Miller,suggests that dividends represent a significant active decision variable that affects firm value.

The clientele effect refers to ________.

A firm has had the following earnings history over the last five years: If the firm's dividend policy is based on a $0.50 payout per share whenever it makes a positive earnings,increasing by $0.05 to previous year dividends per share whenever earnings exceed $1.50 per share,the annual dividends for 2018 and 2019 were ________.

The payment of a stock dividend is a shifting of funds between stockholders' equity accounts rather than an outflow of funds.

According to the residual theory of dividends,if a firm's equity need exceeds the amount of retained earnings,the firm would ________.

Tangshan Mining has 100,000 shares outstanding and just declared a 2-for-1 stock split.Before the announcement,the firm's shares were trading at $50.00 per share.After the stock split,the firm's shares should trade at ________ per share.

Dividend payment policy is a form of ________.

In the aggregate,over time dividend payments tend to fluctuate more than share repurchases.

The repurchase of shares reduces the number of outstanding shares.

Which of the following is considered in designing a dividend policy that is favorable to wealthy owners?

Under the Jobs and Growth Tax Relief Reconciliation Act of 2003,the maximum rate of taxation on dividends received by shareholders was set at ________.

The residual theory of dividends,as espoused by Modigliani and Miller,suggests that dividends represent an earnings residual rather than an active decision variable that affects firm value; this means that a firm's decision to pay dividends or not will not have any impact on a firm's share price.

Tangshan Mining Company has released the following information. (a)What are Tangshan Mining's current earnings per share? (b)What is Tangshan Mining's current P/E ratio? (c)Tangshan Mining wants to use half of its earnings either to pay shareholders dividends or to repurchase shares for inclusion in the firm's employee stock ownership plan.If the firm pays a cash dividend,what will be the dividend per share received by existing shareholders? (d)Instead of paying the cash dividend,what if the firm uses half of its earnings to pay $55 per share to repurchase the shares,what will be the firm's new EPS? What should be the firm's new share price? (e)Compare the impact of a stock dividend and stock repurchase on shareholder wealth.

After a recession when the economy starts to expand again,firms tend to ________.