Chapter 16 Quiz, The Dividend Controversy
1.
Which of the following dividends is never in the form of cash?
A.
Regular dividend
B.
Special dividend
C.
Stock dividend
D.
Liquidation dividend
2.
Dividends are decided by:
A.
The managers of a firm
B.
The employees of a firm
C.
The board of directors
D.
The government
3.
Which of these occurs the last in time (when arranged in chronological order)?
A.
Payment date
B.
Ex-dividend date
C.
Record date
D.
Dividend declaration date
4.
A stock dividend is recorded as:
A.
A transfer from retained earnings to equity capital
B.
A reduction in the par value of each share
C.
A transfer from capital surplus to retained earnings
D.
None of the above
5.
The most important difference between stock repurchases and cash dividends is that they
A.
Benefit different groups
B.
Have different effects on corporate cash flow
C.
Have different effects on current stock price
D.
May have different tax consequences
6.
Which of the following is not true?
A.
Firms have long-run target dividend payout ratios
B.
Dividend changes follows shifts in long-term, sustainable earnings
C.
Managers are reluctant to make dividend changes that might have to be reversed
D.
All of the above
7.
Generally, a reduction in dividend is interpreted by investors as:
A.
Bad news and the stock price drops
B.
Good news and the stock price increases
C.
A non-event and does not affect the stock prices
8.
One key assumption of the Miller and Modigliani dividend irrelevance argument is that:
A.
Future stock prices are certain
B.
There are no capital gains taxes
C.
New shares are sold at a fair price
D.
All investments are risk-free
9.
The indifference proposition regarding dividend policy:
A.
Assumes that tax rates increase at the same rate as inflation
B.
Assumes that investors are indifferent about the timing of dividend payments
C.
States that investors are indifferent between stock dividends and cash dividends
D.
States that investors are indifferent between stock repurchase and cash dividends
10.
One possible reason that shareholders often insist on higher dividends is:
A.
They agree with Miller and Modigliani
B.
They do not trust managers to spend retained earnings wisely
C.
The stock market is efficient
D.
Tax consideration
11.
If both dividends and capital gains are taxed at the same ordinary income tax rate, the effect of tax is different because:
A.
Capital gains are actually taxed, while dividends are taxed on paper only
B.
Dividends are taxed when distributed while capital gains are differed until the stock is sold
C.
Both dividends and capital gains are taxed every year
D.
Both A and C
12.
Which of the following investors have the strongest tax reason to prefer dividends over capital gains?
A.
Pension funds
B.
Financial institutions
C.
Individuals
D.
Corporations
13.
An alternative to paying cash dividends is to repurchase stock.
A.
True
B.
False
14.
Because greenmail involves the repurchase of stock at a price higher than the market price, all shareholders benefit.
A.
True
B.
False
15.
Firms have long-run target dividend payout ratios.
A.
True
B.
False
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