Under the marginal principle of retained earnings:
a. the firm must compare what it can earn with what shareholders could earn on funds if they were distributed
b. all funds above and beyond retained earnings are paid to shareholders
c. funds not paid to creditors and preferred shareholders belong to common shareholders
d. all projects are financed internally
a. the firm must compare what it can earn with what shareholders could earn on funds if they were distributed
Which of the following statements is correct:
a. Dividend amounts are first determined, and the residual retained
b. In achieving the highest overall return, dividends are irrelevant
c. Most shareholders prefer retained earnings over dividends
d. There is conclusive proof that investors prefer dividends over retained earnings
b. In achieving the highest overall return, dividends are irrelevant
Dividends may be considered relevant because:
a. they increase the investor's overall return
b. a higher return will be earned than with retained earnings
c. they are preferred by investors in higher tax brackets
d. they resolve uncertainty in the minds of investors
d. they resolve uncertainty in the minds of investors
Most of the firm's shareholders will prefer:
a. floating dividends that vary with the firm's performance
b. stable dividends over time
c. that funds be reinvested as retained earnings
d. stock dividends
b. stable dividends over time
By maintaining a relatively stable dividend level, the firm:
a. hopes to increase holdings of its common shares
b. hopes to decrease holdings of its common shares
c. hopes to increase the discount rate applied to future dividends
d. hopes to decrease the discount rate applied to future dividends
d. hopes to decrease the discount rate applied to future dividends
The directors of a small, closely held corporation may be reluctant to pay dividends at all because:
a. the dividends will be taxed at a higher rate
b. they fear diluting the cash position of the firms
c. they haven't the means to do a complete funds flow analysis
d. they fear a shareholder proxy battle
b. they fear diluting the cash position of the firms
Wealthier shareholders tend to prefer:
a. a high dividend payout ratio
b. short term capital gains
c. floating rate dividends
d. capital appreciation
d. capital appreciation
A corporation will typically pay the highest dividends in:
a. Development - Stage I
b. Growth - Stage II
c. Expansion - Stage III
d. Maturity - Stage IV
d. Maturity - Stage IV
A corporation will typically pay moderate dividends in:
a. Development - Stage I
b. Growth - Stage II
c. Expansion - Stage III
d. Maturity - Stage IV
c. Expansion - Stage III
All of the following are characteristics of the expansion stage of corporate growth except:
a. sales expansion continues, but at a decreasing rate
b. returns on investment decline
c. the asset expansion rate increases
d. the firm is better able to pay higher cash dividends
c. the asset expansion rate increases
All of the following are key dates associated with the declaration of a dividend except:
a. the ex-dividend date
b. the holder of record date
c. the payment date
d. the dividend receipt date
d. the dividend receipt date
Dividends are quoted _____________, but paid_______________:
a. quarterly, annually
b. annually, quarterly
c. annually, semi-annually
d. annually, monthly
b. annually, quarterly
In chronological order, which of the following is correct:Refer to text page 703.
a. ex-dividend date, holder of record date, payment date
b. holder of record date, ex-dividend date, holder of record date
c. payment date, ex-dividend date, holder of record date
d. holder of record date, payment date, ex-dividend date
a. ex-dividend date, holder of record date, payment date
A stock dividend:
a. represents a distribution of additional shares to common shareholders
b. differs from a stock split largely in size
c. normally has no real value to the investor
d. all of the above are correct
d. all of the above are correct
If a firm repurchases it own stock:
a. in theory, the action is equivalent to paying cash dividends
b. the price of the stock is lowered into a more popular trading range
c. shareholders benefit less than with a stock split
d. shareholders benefit less than with a stock dividend
a. in theory, the action is equivalent to paying cash dividends
clientele effect:
The effect of investor preferences for dividends or capital gains. Investors tend to purchase securities that meet their needs.
corporate life cycle:
A curve illustrating the growth phases of a firm. The dividend policy most likely to be employed during each phase is often illustrated.
dividend payment date: The day on which a shareholder of record will receive his or her dividend.
The day on which a shareholder of record will receive his or her dividend.
dividend record date:
Shareholders owning the stock on the holder-of-record date are entitled to receive a dividend. To be listed as an owner on the corporate books, the investor must have bought the stock before it went ex-dividend.
dividend reinvestment plans: Plans that provide the investor with an opportunity to buy additional shares of stock with the cash dividends paid by the company.
Plans that provide the investor with an opportunity to buy additional shares of stock with the cash dividends paid by the company.
dividend tax credit:
Tax credit accorded to individuals receiving corporate dividends. Its purpose is to compensate for the fact that corporate earnings are taxed in the hands of the corporation and possibly again in the hands of the shareholder.
dividend yield:
Dividends per share divided by market price per share. Dividend yield indicates the percentage return that a shareholder will receive on dividends alone.
ex-dividend date:
Two business days before the holder-of-record date. On the ex-dividend date the purchase of the stock no longer carries with it the right to receive the dividend previously declared.
homemade dividend:
Cash-payment-like dividend determined by an investor by selling a portion of the investor's share holdings.
information content:
This theory of dividends assumes that dividends provide information about the financial health and economic expectations of the company. If this is true, corporations must actively manage their dividends to provide the market with information.
liquidating dividend:
A final payment made to shareholders when a corporation is wound up or liquidated.
marginal principle of retained earnings:
The corporation must be able to earn a higher return on its retained earnings than a shareholder would receive after paying taxes on the distributed dividends.
payout ratio:
The day on which a shareholder of record will receive his or her dividend.
residual theory of dividends:
This theory of dividend payout states a corporation will retain as much earnings as it may profitably invest. If any income is left after investments, the firm will pay dividends. This theory assumes that dividends are a passive decision variable.
stock dividend:
A dividend paid in stock, rather than cash. A book transfer equal to the market value of the stock dividend is made from retained earnings to the capital stock. The stock dividend may be symbolic of corporate growth, but it does not increase the total value of the shareholders' wealth.
stock repurchase:
A corporate initiative to buy back its own shares. This decreases the number of shares outstanding.
stock split:
A division of shares by a ratio set by the board of directors-2 for 1, 3 for 1, 3 for 2, and so on. Stock splits usually indicate that the company's stock has risen in price to a level that the directors believe limits the trading appeal of the stock. The par value is divided by the ratio set, and the new shares are issued to the current shareholders of record to increase their shares to the stated level. For example, a two-for-one split would increase your holdings from one share to two shares.
