72.If you are a company that has a very large amount of cash in its treasury and the IRS is concerned that you have been hoarding cash to prevent your shareholders from having to pay dividend taxes, which of the following would be your most likely method of getting cash into your shareholders hands?
a.repurchase shares
b.pay a cash dividend
c.repurchase debt
d.none of the above
73.If transaction costs are significant, then which of the following might be the effect on cash dividends and share repurchases?
a.dividends might be more likely to be paid from the investors preference argument
b.dividends might be less likely to be paid from the firm’s perspective of raising capital
c.dividend choices are always relevant
d.none of the above
74.A firm has just instituted a regular dividend for the first time in its history. That action might be interpreted in the market as
a.a signal the it believes that it will be able to permanently sustain the future dividends
b.a signal that its growth opportunity set might be slowing
c.a signal that it is a high quality firm
d.all of the above
75.The free cash flow hypothesis predicts that
a.dividend increases should be viewed as good news by investors.
b.firms in industries that generate large amount of cash flow should also have the highest dividend payout ratios.
c.managerial compensation should be designed to pursue value-maximizing dividend policies.
d.all of the above.
76.Which of the following statements is (are) true?
a.Shareholders have a legal right to receive dividends.
b.A firm’s board of directors must decide whether to pay dividends.
c.Most U.S. firms that pay cash dividends do so only once every year.
d.All of the above are true.
e.Only (a) and (c) are true.
77.Which type of firm is more likely to follow a low-regular-and-extra-policy of dividend payout?
a.One in a stable industry with stable earnings.
b.One that recently experienced higher-than-normal earnings that are expected to be temporary.
c.One that recently experienced a downswing in earnings that is expected to be temporary.
d.none of the above
78.Which of the following is not a practical motive for stock repurchases?
a.The desire to reduce the amount of the firm’s outstanding debt.
b.Having shares available for employee stock-option plans.
c.Retiring shares of common stock.
d.Obtaining shares to be used in acquisitions.
e.All of the above are practical motives for stock repurchases.
79.Which of the following statements is true regarding trading and transactions costs?
a.As long as share issues are costless, investors are indifferent about whether to receive returns in the form of capital gains or as cash dividends on shares.
b.If issuing securities entails large costs, both corporations and stockholders should prefer a full-retention strategy regarding dividends.
c.If investors find creating homemade dividends too costly, they would not be willing to pay a premium for stocks that habitually pay dividends.
d.All of the above statements are true.
e.Only statements (a) and (b) are true.
80.Which of the following statements is true?
a.Dividend initiations send a weak signal to the market about management’s assessment of the firm’s long-run ability to general cash.
b.Dividend initiations send a strong signal to the market about management’s assessment of the firm’s long-run ability to general cash.
c.Dividend cuts rarely impact a firm’s stock price.
d.Dividend increases suggest a temporary increase in a firm’s normal level of profitability.
e.All of the above statements are false.
81.Which of the following statements is (are) true?
a.Small, rapidly-growing firms usually have excess cash and are likely to pay cash dividends.
b.Managers of firms with free cash flow should retain the cash and invest in new projects, regardless of the projects’ NPVs, as the transaction costs associated with paying dividends is too costly.
c.Managers of firms with free cash flow should begin to pay dividends to ensure that they will not invest the free cash flow in negative-NPV projects.
d.All of the above statements are false.
82.The central predictions of the agency cost/contracting model of dividend payments include:
a.Dividend initiations and increases should lead to increases in the firm’s stock price when announced.
b.Firms and industries that generate the largest amounts of free cash flow should have the highest dividend payout ratios.
c.Managerial compensation contracts will be designed to entice managers to pursue a value-maximizing dividend policy.
d.All of the above
e.Only (a) and (b)
83.A firm’s investment opportunity set is a function of a firm’s:
a.size
b.industry
c.capital intensity of the firm’s production process
d.the free cash flow generated
e.all of the above
84.Which of the following factors do not have an impact upon a firm’s dividend policy?
a.transactions costs
b.taxes
c.the legal system in the firm’s home country
d.the stability of a firm’s earnings
e.All of the above have an impact on a firm’s dividend policy.
85.An increase in which of the following variables is likely to lead to an increase in a firm’s dividend payout?
a.Positive-NPV investment opportunities
b.Personal tax rates on dividend income
c.Asset growth rate
d.Free cash flow generated
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