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The Peace River Corporation has 67,000 shares of stock outstanding at a market price of $48 a share. The company has just announced a 3-for-2 stock split. How many shares of stock will be outstanding after the split?


A) 44,667 shares
B) 54,333 shares
C) 89,333 shares
D) 100,500 shares
E) 108,666 shares

F) A) and E)
G) B) and D)

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Which one of the following favors a low dividend policy?


A) the tax on capital gains is deferred until the gain is realized
B) few, if any, positive net present value projects are available to a firm
C) a majority of the shareholders has a low relevant tax rate
D) a majority of the shareholders has better investment opportunities with similar risks
E) corporate tax rates exceed personal tax rates

F) C) and E)
G) B) and E)

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The Green Florist has 28,000 shares of stock outstanding with a par value of $1 per share and a market value of $7 a share. The company just announced a 2-for-5 reverse stock split. Currently, you own 300 shares of this stock. How many shares will you own after the reverse stock split?


A) 60 shares
B) 120 shares
C) 480 shares
D) 600 shares
E) 750 shares

F) A) and D)
G) B) and C)

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Tucker's National Distributing has a current market value of equity of $10,665. Currently, the firm has excess cash of $640, total assets of $22,400, net income of $3,210, and 500 shares of stock outstanding. Tucker's is going to use all of its excess cash to repurchase shares of stock. What will the stock price per share be after the stock repurchase is completed?


A) $20.87
B) $20.94
C) $21.06
D) $21.33
E) $21.42

F) A) and B)
G) A) and C)

Correct Answer

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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

F) A) and C)
G) A) and B)

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Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding?


A) special dividend
B) stock split
C) share repurchase
D) rights offer
E) liquidating dividend

F) B) and E)
G) A) and B)

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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.

F) B) and C)
G) A) and E)

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Delaware Trust has 450 shares of common stock outstanding at a market price per share of $27. Currently, the firm has excess cash of $400, total assets of $28,900, and net income of $1,320. The firm has decided to pay out all of its excess cash as a cash dividend. What will the earnings per share be after this dividend is paid?


A) $2.69
B) $2.86
C) $2.93
D) $3.07
E) $3.24

F) A) and B)
G) B) and C)

Correct Answer

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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.

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Both stock repurchase and cash dividend ...

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An investor is more likely to prefer a high dividend payout if a firm:


A) has high flotation costs.
B) has few, if any, positive net present value projects.
C) has lower tax rates than the investor.
D) has a stock price that is increasing rapidly.
E) offers substantial gains on its equities, which are taxed at a favorable rate.

F) None of the above
G) A) and E)

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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.

F) B) and E)
G) D) and E)

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A firm wants to maintain a minimum stock price of $15 a share. Due to a recent market downturn, the stock is currently selling for $6 a share. The firm should consider a:


A) 3-for-1 stock split.
B) 4-for-1 stock split.
C) 1-for-3 reverse stock split.
D) 1-for-4 reverse stock split.
E) 1-for-5 reverse stock split.

F) A) and D)
G) C) and D)

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Automatic dividend reinvestment plans: I. require that stockholders reinvest all of the dividends to which they are entitled. II. sometimes grant shareholders the privilege of purchasing additional shares at a discounted price. III. help shareholders create their own homemade dividend policies. IV. help make corporate dividend policies irrelevant to individual stockholders.


A) II only
B) III only
C) II and III only
D) II, III, and IV only
E) I, II, III, and IV

F) A) and B)
G) C) and D)

Correct Answer

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Glendale Paving currently has 120,000 shares of stock outstanding that sell for $54 per share. Assume no market imperfections or tax effects exist. What will the new share price be if the firm declares a 40 percent stock dividend?


A) $31.12
B) $32.08
C) $35.19
D) $38.57
E) $40.00

F) C) and D)
G) B) and D)

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Webster United is paying a $1.10 per share dividend today. There are 350,000 shares outstanding with a market price of $23 per share. Ignore taxes. Before the dividend, the company had earnings per share of $1.74. As a result of this dividend, the:


A) retained earnings will decrease by $350,000.
B) retained earnings will increase by $385,000.
C) total firm value will not change.
D) earnings per share will increase to $2.84.
E) price-earnings ratio will be 12.59.

F) A) and E)
G) A) and D)

Correct Answer

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Bell Weather Markets has recently sold for as little as $8 a share and as much as $15 a share. The difference between these two prices is referred to as the:


A) price variance.
B) bid-ask spread.
C) trading range.
D) opening price.
E) closing price.

F) A) and E)
G) B) and D)

Correct Answer

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The common stock of Checkers, Inc. is selling for $56 a share and the par value per share is $1. Currently, the firm has a total market value of $812,000. How many shares of stock will be outstanding if the firm does a 3-for-2 stock split?


A) 9,667 shares
B) 12,500 shares
C) 14,500 shares
D) 17,750 shares
E) 21,750 shares

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

Correct Answer

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Which one of the following is a direct result of a 2-for-1 stock split?


A) a 100 percent increase in the number of shareholders
B) a 100 percent increase in the common stock account balance
C) a 100 percent decrease in the stock price
D) a 50 percent increase in the number of shares outstanding
E) a 50 percent decrease in the par value per share

F) B) and D)
G) A) and B)

Correct Answer

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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

F) D) and E)
G) A) and E)

Correct Answer

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Which one of the following statements correctly applies to U.S. industrial firms based on the period of 1984 -2004?


A) Earnings growth rates tend to lag dividend growth rates.
B) Dividends tend to fluctuate significantly from quarter to quarter.
C) The percentage of these firms paying dividends in 2004 was higher than in 1984.
D) The total amount of dividends paid by these firms was greater in 2004 than in 1984.
E) Non-dividend paying firms in 1984 were more apt to commence paying regular dividends than to implement a stock repurchase program.

F) A) and D)
G) B) and E)

Correct Answer

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