Sample_Test_Questions_Chapters_16_Corrected - A) Bad news...

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1 Sample Test Questions Chapter 16 1. Firms can pay out cash to their common stockholders in the following ways: (I) Dividends (II) Share repurchases (III) Interest payments A) I only B) II only C) III only D) I and II only Answer: D 2. Which of the following lists events in the chronological order from earliest to latest? A) Record date, declaration date, ex-dividend date B) Declaration date, record date, ex-dividend date C) Declaration date, ex-dividend date, record date D) Ex-dividend date, record date, declaration date Answer: C 3. One possible reason that shareholders often insist on higher dividends is: A) They agree with Miller and Modigliani B) Dividends have been historically taxed at a lower rate than capital gains C) The stock market is efficient D) They do not trust managers to spend retained earnings wisely Answer: D 4. Generally, the announcement of an increase in dividends is interpreted by the investors as:
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Unformatted text preview: A) Bad news because it signals management is pessimistic about the firms prospects and the stock price drops. B) Good news because it signals management is optimistic about the firms prospects and the stock price increases. C) A non-event because companies change their dividends frequently. It does not affect the stock price. D) Good news because U.S. tax rates on dividends are generally less than the tax rates on capital gains. Answer: B 2 5. Flatts Tire Service has planned investments of $300 for next year and an aftertax net income of $600 this year. The company has a residual dividend policy and maintains an equity-to-value ratio of 5/9. What will be the residual dividend next year? A) $480.00 B) $300.00 C) $433.33 D) $166.67 E) $600.00 Answer: C New equity required = E = (5/9)$300 = $166.67 Residual Dividend = Max{NI Inv.(E/V),0} = $600 - $166.67 = $433.33...
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This note was uploaded on 05/09/2011 for the course FNAN 522 taught by Professor Wilson during the Spring '11 term at University of Louisiana at Lafayette.

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Sample_Test_Questions_Chapters_16_Corrected - A) Bad news...

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