Q18 - University of Houston-Victoria FIN 6352 Financial...

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FIN 6352 Financial Management FMQuiz18 Dr. Xavier Garza Gómez University of Houston-Victoria FIN 6352 Financial Management Review Quiz for Chapter 18 - Distributions to Shareholders: Dividends and Repurchases True-False 1. A firm that follows a residual distribution policy must believe that the dividend irrelevance theory is cor- rect. a. True b. False 2. A reverse split reduces the number of shares outstanding. a. True b. False 3. If the information content, or signaling, hypothesis is correct, then changes in dividend policy can be im- portant with respect to firm value and capital costs. a. True b. False Multiple Choice: Concepts 4. In the real world, we find that dividends a. Usually exhibit greater stability than earnings. b. Fluctuate more widely than earnings. c. Tend to be a lower percentage of earnings for mature firms. d. Are usually changed every year to reflect earnings changes. e. Are usually set as a fixed percentage of earnings. 5. Which of the following statements best describes the theories of investors’ preferences for dividends? a. Modigliani and Miller argue that investors prefer dividends to capital gains. b. The bird-in-hand theory suggests that a company can reduce its cost of equity capital by reducing its dividend payout ratio. c. The tax preference theory suggests that a company can increase its stock price by increasing its divi- dend payout ratio. d. One key advantage of a residual distribution policy (with all distributions as dividends) is that it enables a company to follow a stable dividend policy. e. The clientele effect suggests that companies should follow a stable dividend policy.
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This note was uploaded on 11/23/2008 for the course FIN 6352 taught by Professor Gomez during the Spring '08 term at TAMU Intl..

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Q18 - University of Houston-Victoria FIN 6352 Financial...

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