Old Exam Questions - Dividends Page 1 of 5 Pages Dividends - Questions1. A stock dividend and a stock split should, at least conceptually, have the same effect on shareholders’ wealth. A. True B. False 2. Underlying the dividend irrelevance theory proposed by Miller and Modigliani is their argument that the value of the firm is determined only by its basic earning power and its business risk. A. True B. False 3. If the information content hypothesis, or signaling theory, is correct, then changes in a firm’s dividend policy can affect investors’ perceptions and, in turn, affect a firm’s value and its capital costs. A. True B. False 4. One key advantage of a residual distribution policy (with all distributions as cash dividends) is that it enables a company to follow a stable dividend policy. A. True B. False 5. If a firm adopts a residual distribution (dividend) policy, distributions are determined as a residual item. Therefore, the better the firm's investment opportunities, the lower its distributions should be. A. True B. False 6. On average, we might expect a company’s stock price to rise when it announces that it is initiating a share repurchase program.
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