Chapter 13--Distribution of

Chapter 13--Distribution of - Chapter 13-Distribution of...

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Chapter 13--Distribution of Retained Earnings: Dividends and Stock Repurchases Chapter 13--Distribution of Retained Earnings: Dividends and Stock Repurchases Student: ___________________________________________________________________________ 1. The dividend irrelevance theory, proposed by Miller and Modigliani, says that as long as a firm pays a dividend, how much it pays does not affect either its cost of capital or its stock price. True False 2. The farther to the right the IOS is, other things held constant, the lower a firm's dividend payout ratio. True False 3. A reverse split reduces the number of shares outstanding. True False 4. The dividend irrelevance theory says that the firm's dividend policy has no effect on either its value or its cost of capital. True False 5. Managers, on average, do not raise dividends unless they believe future earnings will be able to sustain the higher level dividends. True False 6. According to the free cash flow hypothesis, cash flows that cannot be reinvested in positive net present value projects should be kept as retained earnings. True False
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7. Firms following a constant dividend ration payout policy will cause investors to have greater uncertainty concerning expected dividends each year when the earnings for the firm are stable over time. True False 8. The "new stock" type of dividend reinvestment plan allows the stockholder to automatically reinvest dividends to buy existing in the open market. True False 9. The ex-dividend date is the date on which a firm actually mails dividend checks. True False 10. Firms with a large number of acceptable capital budgeting projects generally have a high dividend payout ratio. True False 11. A stock split is always associated with an increase in the value of the equity outstanding. True False 12. On a 2-for-1 stock split, the shares outstanding are doubled, and the stock's par value is halved. True False 13. The dividend payout ratio, on average, for companies in the United States is higher than for companies in Japan. True False 14. A firm that follows a residual dividend policy must believe that the dividend irrelevance theory is correct. True False 15. If the shape of the curve depicting a firm's WACC versus its debt ratio is more like a sharp "V", as opposed to a shallow "U", the easier it will be for the firm to maintain a steady dividend in the face of varying investment opportunities from year to year. True False
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16. If the information content, or signaling, hypothesis is correct, then changes in dividend policy can be important with respect to firm value and capital costs. True False 17. In the real world, we find that dividends A. Usually exhibit greater stability than earnings. B. Fluctuate more widely than earnings.
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This note was uploaded on 01/18/2011 for the course FIN 3604 taught by Professor Patterson during the Spring '10 term at University of South Florida.

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Chapter 13--Distribution of - Chapter 13-Distribution of...

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