Question : 64. Which of the following correct for a firm with $400,000 : 1284376

64. Which of the following is correct for a firm with $400,000 in net earnings, 20,000 shares, and a 30% payout ratio?
A. Retained earnings will increase by $120,000.
B. Each share will receive a $1.20 dividend.
C. $120,000 will be spent on new investment.
D. The dividend per share will equal $6.00.

65. A firm is said to be “smoothing” dividends if dividends:
A. are paid through an automatic dividend reinvestment plan.
B. change more gradually than changes in earnings.
C. increase by the same dollar amount each year.
D. are paid only in even dollar amounts.

66. A firm’s dividend policy involves a trade-off between:
A. a large asset base and a small asset base.
B. high share price versus low share price.
C. internal versus external financing of investment.
D. all of these.

67. When a firm announces a two-for-one stock split (in the absence of other new information), investors should expect that:
A. earnings per share will fall in half but stock price will remain the same.
B. stock price will fall in half but earnings per share will remain the same.
C. both earnings per share and stock price will remain the same.
D. both earnings per share and stock price will fall by half.

68. MM’s proposition concerning dividends contends that shareholders will:
A. offer higher prices for higher dividend payouts.
B. not offer higher prices for higher dividend payouts.
C. offer higher prices for lower dividend payouts.
D. purchase only stocks that have high dividend payouts.

69. MM’s assertion that dividend policy will not affect the value of the firm requires that dividend policy does not:
A. alter the retained earnings of the firm.
B. affect investment and borrowing policies.
C. allow the payout ratio to change.
D. alter the number of outstanding shares.

70. Which of the following is not an example of market imperfections that make dividend policy relevant?
A. Institutional restrictions on stock holdings
B. Differences in dividend-payout ratios
C. Transaction costs such as brokerage fees
D. Differences among investors in marginal tax rates

71. Which of the following is not a logical justification for dividend preference (vs. capital gains) in the real world?
A. Institutional restrictions involving dividends
B. Higher share prices from higher payouts
C. A steady source of cash without transaction costs
D. Differing income tax rates

72. Why have firms been willing to borrow money in the absence of having sufficient cash to pay dividends?
A. Defaulting on dividends lowers credit ratings.
B. Borrowing is cheaper than paying to omit dividends.
C. Borrowing increases the firm’s asset base.
D. Dividend cuts often signal bad future performance.

73. A stock is currently priced at $65 per share and will pay a $4 dividend in one year. What must the stock sell for in one year to meet investors’ expectations of a 15% after-tax yield if dividends are taxed at 28%? Ignore capital gains taxes due to investor timing.
A. $70.75
B. $71.87
C. $73.63
D. $76.00

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