Question :
84. In a three-for-two stock split for a company that previously : 1284364
84. In a three-for-two stock split for a company that previously had 1 million shares outstanding selling at $100 per share and a total market value of $100 million, which of the following is true?
A. The number of outstanding shares will drop to 666,666, and the stock price will increase to $150.
B. The number of outstanding shares will increase to 1.5 million, and the stock price will drop to $66.67.
C. The number of outstanding shares will increase to 1.5 million, and the stock price will rise to $133.33.
D. The market value of the firm will increase.
1 million shares ? (.15) = 1.5 million
Since total market value does not change:
($100 million/1.5 million shares) = $66.67 = stock price
85. Which of the following statements regarding stock dividends and stock splits is true?
A. A two-for-one stock split is equivalent to a 50% stock dividend.
B. A three-for-one stock split is equivalent to a 66% stock dividend.
C. A three-for-two stock split is equivalent to a 100% stock dividend.
D. A 50% stock dividend is equivalent to a three-for-two stock split.
86. Research has shown all of the following to be true of the way corporations determine dividends except:
A. Firms have short-run target payout ratios.
B. Firms have long-run target payout ratios.
C. The focus is more on dividend changes rather than absolute dividends.
D. Managers try to avoid dividend changes that may need to be reversed.
87. When the firm has a high retention ratio, thus paying low dividends, the dividend is a by-product of what kind of decision?
A. Borrowing
B. Debt policy
C. Financing
D. Capital budgeting
88. Dividend policy is a trade-off between ___________ and ___________.
A. retained earnings; borrowing
B. capital budgeting; capital structure
C. retained earnings; issuing stock
D. declaring stock splits; stock dividends
89. An assumption of the MM dividend irrelevance proposition is:
A. investors are willing to pay higher prices for shares with higher payouts.
B. capital gains are offset by receiving no dividend.
C. extra cash dividends are offset by a capital gain.
D. extra cash dividends are offset by a capital loss.
90. With respect to the proposition that dividend policy does not matter, in order to raise an additional $5,600 in cash by issuing stock, the stock sold must be worth:
A. more than $5,600.
B. $2,800.
C. $5,600.
D. need to know the number of shares issued to calculate.
91. The Beta corporation had 1,000 shares outstanding and a market value of $90,000 prior to the declaration of a $5 per share dividend. To finance a new project they will issue equity and the end result will be that the market value of the firm:
A. drops by $1,000.
B. drops to $85,000.
C. increases by $1,000.
D. increases to $95,000.
92. In regard to dividend policy, unless a firm’s investment policy and borrowing remain constant:
A. its overall cash flows will remain the same.
B. its overall cash flows will change.
C. stockholders’ risk will increase.
D. stockholders’ risk will decrease.
93. A two-for-one stock split will result in:
A. the firm acquiring new assets.
B. a decrease in the stock price, but an increase in shareholder wealth.
C. an increase in the stock price, and an increase in shareholder wealth.
D. a decrease in the stock price and no change to shareholder wealth.
