Question :
94. High dividends may be used as __________ of a firm’s : 1284365
94. High dividends may be used as __________ of a firm’s __________.
A. an indicator; high capital gains
B. an indicator; tax liability
C. a signal; poor prospects
D. a signal; good prospects
95. Of the following, who has tax benefits for preferring dividends?
A. Individual investors
B. Corporations
C. Financial institutions
D. Banks
96. Which of the following statements is correct about investors in Ajax Industries, which has just announced a three-for-one stock split?
A. Investors will triple their wealth after the split.
B. Investors’ wealth will fall by two-thirds after the split.
C. Percentage of ownership increases for the investors.
D. Earnings per share will fall by two-thirds after the split.
97. A company may choose to repurchase stock rather than pay out dividends when:
A. the company wants to distribute excess cash, by making a regular commitment to its investors.
B. the company wants to give its investors a bumper dividend.
C. the company does not want to make a commitment to distribute more cash.
D. the company does not want to embark on unprofitable ventures.
98. When a corporation engages in a 10% stock repurchase, it:
A. offers shareholders 110 shares for every 100 they currently own.
B. purchases for cash 10% of the outstanding shares.
C. sells treasury stock at a 10% discount to investors.
D. purchases 10% of previously issued stock dividends.
99. A share repurchase is said to be equivalent to the payment of a cash dividend because each strategy:
A. causes share price to decline.
B. causes share price to stay the same.
C. creates the same tax liability for the investor.
D. leaves the firm with the same amount of assets.
100. Assuming no market imperfections, which of the following will not be affected by a repurchase of shares?
A. Assets of the firm
B. Equity of the firm
C. Shares outstanding
D. Price per share
101. Assuming no market imperfections, which of the following processes would not be expected to have an effect on share price?
A. Dividend declaration and payment
B. Stock repurchase
C. Stock dividend
D. Stock split
102. With a stock repurchase:
A. no cash flow is extended from the company.
B. the company obtains some of its stock, and the price may rise.
C. shareholders’ ownership in the company will decrease.
D. the equity of the firm will increase.
103. When a public firm declares a stock repurchase:
A. the number of outstanding shares falls along with the price.
B. the number of outstanding shares falls and the price may rise or remain unchanged.
C. an investor will receive cash in exchange for a smaller percentage of ownership.
D. demand drives the stock price up.
104. Managers have been characterized as reluctant to increase dividends if:
A. dividends were increased in the preceding year.
B. earnings have permanently increased.
C. the dividend increase cannot be sustained.
D. the dividend payout ratio exceeds 20%.
105. The manager of XYZ Corp. feels that a dividend increase will increase stock price because many investors value stock with a dividend-discount model. Why might MM disagree with this assertion?
A. The increased dividend makes the firm much riskier.
B. Future dividend growth may slow due to lower retained earnings.
C. Investors prefer capital gains over dividends.
D. Dividend increases will increase the book value but not the market value of the firm.
106. Which of the following statements regarding “taxation of dividends and capital gains under current tax law” is incorrect (assuming that the marginal tax rate for a large corporation is 35%)?
A. For-profit corporations have a tax reason to prefer dividends.
B. Corporations pay corporate income tax on only 30% of any dividends received.
C. The effective tax rate on dividends received by large corporations is 35% of the marginal corporate tax rate.
D. Corporations have to pay a 35% tax on the full amount of any realized capital gain.
