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Bài test tiếng Anh ngành ngân hàng và đáp án phần 17

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
1. When a company distributes dividends to stockholders, the amount of equity capital
invested in the firm is reduced.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
2. A liquidating dividend occurs when a going-concern firm liquidates a division and pays
out the proceeds to its shareholders.
A) True
B)

False


Ans: B

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
3. Under U.S. bankruptcy rules, shareholders are entitled to a liquidating dividend
whenever the company's assets are sold in bankruptcy.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
4. Consider an investor who purchases a dividend-paying stock of a public company the
day prior to the dividend record date. We would expect this investor to receive a
dividend distribution.
A) True
B)

False

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Ans: B

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
5. Distributions to stockholders in the form of a standing discount for products or services
that the firm produces are often not thought of as dividends.
A) True
B)

False



Ans: A

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
6. Stock prices react to dividend announcements because the amount of the dividend
sends a signal to investors about management's view of the company's prospects.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
7. Dividends reduce the stockholder's investment in the firm.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
8. Stock prices drop on the ex-dividend date, but usually the drop is less than the amount
of the dividend.
A) True

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B)

False

Ans: A

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
9. If there are no taxes on dividends, then the price of a stock will not drop on the exdividend date.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
10. Private companies often don't announce dividend payments because private company
shares are not frequently traded and the list of shareholders is relatively small.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
11. The record date should never come before the ex-dividend date.
A) True
B)

False

Ans: A

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Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
12. Stockholders who don't choose to sell back their shares in a stock repurchase are losing
money because the company is only distributing value to the participating shareholders.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
13. In a realistic situation, dividend policy does not affect firm value.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
14. A large regular dividend always denotes a firm with a high level of cash that also has
many new project alternatives.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
15. Dividend policy can help a firm maintain a desired capital structure.
A) True
B)

False

Ans: A

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Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
16. Fixed-price tender offer stock repurchases always take place at a price higher than the
market price of the stock.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
17. Targeted share repurchases always occur at a price higher than the current market
quoted price for a stock.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
18. Open-market stock repurchases are a convenient way for the company to distribute
large amounts cash.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
19. Stock repurchases are a stronger indication of “high cash flow” than dividends.
A) True
B)

False

Ans: B

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Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
20. Compared to raising regular cash dividends, initiating an open-market stock repurchase
is generally not as ”strong” a positive signal to investors because the repurchase can
easily be canceled or scaled back before it is completed.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
21. If the three conditions of Modigliani and Miller hold, then dividend policy should not
affect firm value.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
22. Traditionally, capital gains taxes have been higher than taxes on dividends.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 2
Level of Difficulty: Medium
23. Suppose that the government raises short- and long-term capital gains taxes while
leaving all other taxes unchanged. This tax rate change would encourage companies to
increase the use of stock repurchases rather than issuing dividends.
A) True
B)

False

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Ans: B

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
24. Dividend reinvestment programs allow investors to reinvest the dividends they receive
back into a company's stock without paying taxes on the dividends or a transaction fee
on the stock purchase.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
25. Paying a stock dividend does not actually transfer any value to the company's
stockholders.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Medium
26. Some companies have been known to pay dividends to current stockholders while
simultaneously raising capital through a new equity issue. Generally, this behavior is
explained by the need to discipline managers by regularly exposing the company to the
extra scrutiny involved in an equity issue.
A) True
B)

False

Ans: A

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Format: True/False
Learning Objective: LO 4
Level of Difficulty: Medium
27. Although stock splits do not add any value to the firm, investors tend to react positively
to stock splits because management isn't likely to initiate a stock split if the firm's
prospects are poor.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 5
Level of Difficulty: Medium
28. Surveys conducted of managers tell us that they primarily see regular cash dividends as
a way to precisely adjust their leverage ratio to the target suggested by the trade-off
theory of capital structure.
A) True
B)

False

Ans: B

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
29. It is unethical for a corporate board to conduct a large tender offer stock repurchase
when the board members have private information indicating that the company's share
price is too high.
A) True
B)

False

Ans: A

Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
30. It is possible for a large investor to get a controlling interest in a firm without actually
buying any additional shares.
A) True

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B)

False

Ans: A

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
31. Which type of dividend is most likely to be used to distribute the revenue from a onetime sale of a large asset?
A) Regular cash dividend
B)

Extra dividend

C)

Special dividend

D)

Liquidating dividend

Ans: C

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
32. Which type of dividend is used to distribute any remaining value when the company's
assets are being sold as the company is terminated?
A) Regular cash dividend
B)

Extra dividend

C)

Special dividend

D)

Liquidating dividend

Ans: D

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
33. Consider a company that had unexpectedly higher earnings last quarter and intends to
pay out some additional value to shareholders. Which type of dividend is the company
likely to use?
A) Regular cash dividend
B)

Extra dividend

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C)

Special dividend

D)

Liquidating dividend

Ans: B

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
34. Which step in the dividend payment process for a public company usually results in a
change in the company's stock price? Assume the dividend has changed from the last
dividend paid.
A) Public announcement
B)

Ex-dividend date

C)

Payable date

D)

Both a and b

Ans: D

Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
35. The shares of ABC, Inc., fell sharply today after the company announced that it is
increasing its regular cash dividend distributions. Which one of the following
explanations may explain investors' negative reaction?
A) Changes in regular cash dividends are made frequently so that the company's
management can adjust for changes in short-term earnings. The decrease in the
stock price is probably related to some other negative event.
B) Investors previously believed the company had many lucrative growth
opportunities. By announcing higher regular cash dividends, the company is
sending a signal that it doesn't have enough positive-NPV projects to use all the
money.
C) Investors expected that the company would announce a stock repurchase rather
then a cash dividend increase. Since a change in dividend policy is commonly
viewed as a weaker signal than a stock repurchase, the share price fell on the
news of the dividend increase.
D) None of the above explanations can possibly explain investor's reaction.
Ans: B

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Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
36. Which one of these examples does NOT meet the strict definition for a dividend?
A) Steel Gen Corp regularly distributes $0.05 to each shareholder for every share
they own.
B) Chalone Vineyards once offered their investors discounts on wine in proportion to
the number of shares they owned.
C) Churchill Downs, Inc., which operates several horse racing tracks, including the
location for the Kentucky Derby, distributes two free general admission tickets to
every investor who holds more then 100 shares in the company (as of 2008).
D) Both b and c do not meet the definition for a dividend.
Ans: C

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
37. Which of the following is NOT a possible result of a stock repurchase?
A) Removing a large number of shares from circulation can change the ability of
certain shareholders to control the firm.
B) If the number of remaining shares is relatively small, the remaining shares will be
less liquid.
C) The company will decrease its leverage ratio (debt-to-equity ratio).
D)

By repurchasing stock when it is undervalued, managers can effectively transfer
value from selling stockholders to stockholders who don't take part in the
repurchase.
Ans: C

Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
38. Which type of stock repurchase often takes place at a price below the current market
price of the stock?
A) Open-market repurchase
B)

Fixed-price tender offer repurchase

C)

Dutch auction tender offer repurchase

D)

Targeted stock repurchase

Ans: D

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Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
39. Which type of stock repurchase allows management to set the repurchase price at the
lowest level necessary to repurchase the desired number of shares?
A) Open-market repurchase
B)

Fixed-price tender offer repurchase

C)

Dutch auction tender offer repurchase

D)

All of the above will generate the same purchase price.

Ans: C

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
40. Which of the following explanations is NOT a possible benefit of dividends?
A) Some investors prefer dividend-paying stocks and will be willing to pay a higher
price for stocks with regular dividends.
B) Paying out large regular dividends can force management to regularly raise more
capital. The extra scrutiny involved in raising capital can increase the incentives
of management to run the company efficiently.
C) Dividends can be used to manage the capital structure of the company.
D)

Paying dividends reduces the probability that the firm will enter financial
distress.
Ans: D

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
41. Which of the following statements about the relative advantages of stock repurchases
over dividends is NOT true?
A) Stock repurchases send a stronger signal than dividends to the market about
management's belief that the firm's prospects are good.
B) Open-market stock purchases allow management more flexibility because
investors are less likely to react if the management cuts back or ends a stock
repurchase as compared to cutting back on dividend payments.
C) Stock repurchases allow stockholders to choose whether or not to participate in
the stock repurchase. This allows stockholders to have more control over their tax
burden.
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D)

Historically, taxes on dividend payment have been higher than those on stock
repurchases.
Ans: A

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
42. In early 2003, the U.S. government cut the tax rate on dividends to a flat 15 percent
instead of treating dividend payments as other income. All else being equal, how would
we expect the number of companies paying dividends to change.
A) We would expect the number of dividend-paying companies to increase.
B)

We would expect the number of dividend-paying companies to decrease.

C)

We would expect the number of dividend-paying companies to stay relatively
constant.
None of the above.

D)

Ans: A

Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
43. Suppose you are advising a retiree who holds 2,000 shares of LargeDiv Corp. The
company is largely held by tax-paying institutional investors and has announced that it
will shortly be issuing a large dividend. Because the shares are held in the retiree's Roth
IRA, she will not incur taxes on either capital gains or dividends. The retiree has
decided to sell the shares sometime this year, and use the money for living expenses.
You expect the only upcoming change in the stock price will result from the dividend.
Ignoring any discounting for time, what advice should you give?
A) Sell the stock now—the stock price is likely to decrease more than just the
dividend amount.
B) Sell the stock ex-dividend—the stock price is likely to decline, but by less than
the dividend amount.
C) It doesn't matter when the stock is sold.
D)

Sell the stock now—it is always better to sell the stock immediately regardless of
the tax consequences.
Ans: B

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Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
44. Suppose you own shares of ThreeFor, Inc., which has just announced a 3-for-1 stock
split. Immediately after the announcement, the price of the company's shares rose by 5
percent. You don't expect any new information about the company until after the stock
split. Ignoring any discounting for time, if you intend to sell your shares soon, you
should
A) sell the stock now—the single share you have now is likely to be worth more than
the three shares you'll have after the split.
B) sell the stock after the split—typically, the marker reacts positively to stock splits.
The three shares you'll have after the split will be worth more than the single
share you have now.
C) sell the stock now—the stock is likely to be more liquid before the split when
there are fewer shares.
D) It doesn't matter when the stock is sold. If there is no new information about the
stock, then the value of three shares after the split should be the same as the value
of the single share you hold now.
Ans: D

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
45. Generally, management undertakes a reverse stock split to
A) send a signal to investors that the company is expected to perform poorly.
B)

meet the minimum requirements to be listed on one of the major stock exchanges.

C)

increase the liquidity of shares by decreasing the number of share available.

D)

reduce the administrative costs associated with investor relations.

Ans: B

Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Easy
46. Which one of the following statements describes the finding from academic studies on
corporate dividend policy?
A) Managers tend to increase regular cash dividends in response to unexpectedly
high earnings.
B) Managers tend to maintain a level dividend payment at an amount that they are
relatively certain they can maintain in the future.
C) Managers tend to focus on dividends rather than stock repurchases because

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institutional investors tend to prefer regular dividends.
D) Dividend policy doesn't matter because investors can re-create dividends by
selling a fraction of their shares.
Ans: B

Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Medium
47. Which of the following considerations should NOT be related to management's
concerns when setting a dividend or stock repurchase policy?
A) Over the long term, how much does the company's level of earnings exceed its
investment requirements? How certain is this level?
B) Is the stock currently undervalued? Can the management add value to the
company by initiating a stock repurchase?
C) Does the firm have enough financial reserves to maintain the dividend policy in
periods when earnings are down or investment requirements are up?
D) Can the firm quickly raise equity capital if necessary?
Ans: B

Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Easy
48. Which one of these actions could by itself have an impact on the control of the firm?
A) A tender offer stock repurchase
B)

A special dividend payment

C)

A stock split

D)

A regular cash dividend payment

Ans: A

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Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Medium
49. GHI Co. has just announced that the board has reached a targeted stock repurchase
agreement with a large stockholder. The company will repurchase all of the large
investor's stock for 90 percent of the current market value. When the stock repurchase
was announced, the shares of GHI Co. fell by 7 percent. Which one of these
explanations could reasonably explain the drop in share price?
A) The willingness of the large investor to accept the targeted stock repurchase
signals that the large investor believes the company will not do well in the future.
B) A targeted stock repurchase essentially transfers value from the average investor
to the targeted investor.
C) Investors believe that the company's management is entrenching itself by buying
off any large block shareholders.
D) Both a and c are possible explanations.
Ans: C

Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Medium
50. Good Signal Co. is currently trading for $10 with 1 million shares outstanding. Which
of the following actions would be the most credible signal that management believes
that the long-term prospects for a company has improved?
A) Pay a $0.20 extra dividend in addition to the company's $0.20 regular quarterly
dividend.
B) Increase the company's regular quarterly dividend from $0.20 to $0.40.
C)

Initiate an open-market stock repurchase of 2 percent of the company's stock.

D)

Initiate a Dutch auction tender offer stock repurchase for 2 percent of the
company's stock.
Ans: B

Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
51. Stock splits: Split-Gram, Inc., has announced a 4-to-1 stock split. If the company
currently has 1 million shares outstanding, how many outstanding shares will it have
after the split?
A) 4 million
B)

3 million

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C)

2 million

D)

1 million

Ans: A
Feedback:
The company had 1 million shares outstanding and is issuing a 4-for-1 stock split.
4 × 1 million = 4 million.
Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
52. Stock splits: You own 3,000 shares of Split Holdings Co. The shares are currently
selling for $48. The company has just announced a 4-for-1 stock split. How many
shares will you own after the split, and approximately what will your holdings in Split
Holdings Co be worth?
A) 12,000 shares worth about $144,000
B)

12,000 shares worth about $576,000

C)

15,000 shares worth about $144,000

D)

15,000 shares worth about $720,000

Ans: A
Feedback:
You own 3,000 shares of a company that is undergoing a 4-for-1 split. You will have:
4 × 3,000 = 12,000 shares
After the split, each share will be worth one-fourth of the original share price, so your
total holding will be worth:
($48 / 4 ) × 12,000 = $144,000
Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
53. Stock dividends and stock splits: Split-Div, Inc., has issued quarterly dividends of
$0.10 per share each quarter over the last few years. This quarter Split-Div initiated a 2for-1 stock split. What is the minimum quarterly dividend the board of Split-Div should
approve to avoid sending a bad signal to investors?
A) $0.02 per share
B)

$0.05 per share

C)

$0.10 per share

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D)

$0.20 per share

Ans: B
Feedback:
To avoid sending a bad signal to investors, the company needs to pay out the same
dividend relative to the number of outstanding shares. After a 2-for-1 split, the
equivalent regular cash dividend would be $0.10 / 2 = $0.05.
Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
54. Stock splits: You own 1,200 shares of ABC, Co. The company has recently announced
a 1-for-3 reverse stock split. How many shares will you own after the reverse split?
A) 300 shares
B)

400 shares

C)

3,600 shares

D)

4,800 shares

Ans: B
Feedback:
You own 1,200 shares. After a 3-for-1 reverse stock split, you would own:
1,200 / 3 = 400 shares
Format: Multiple Choice
Learning Objective: LO 4
Level of Difficulty: Medium
55. Stock dividends: ABC Co. stock is currently trading for $54. Assume there is no new
information about the company. If the company issues a 10 percent stock dividend,
what will the approximate price of the stock be after the stock dividend is issued?
A) $47.80 per share
B)

$48.60 per share

C)

$49.09 per share

D)

$54.00 per share

Ans: C
Feedback:
After the stock dividend, there will be 110 percent more shares representing the same
amount of assets: $54 / 110% = $49.09 per share

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Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
56. Types of dividends: ABC Co. will be distributing $40 million to shareholders through
a special dividend. The company has 160 million shares outstanding. If you own 100
shares of ABC Co., how much will you receive? Ignore taxes.
A) $400
B)

$100

C)

$25

D)

None of the above

Ans: C
Feedback:
The dividend payment will be ($40 million / 160 million shares) = $0.25 per share.
With 100 shares you will receive 100 × $0.25 = $25.
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
57. The ex-dividend date: ABC Co. has announced it will pay its regular cash dividend of
$0.45 per share. If dividends are taxed at 15 percent, about how much do you expect the
price of ABC to drop on the ex-dividend day?
A) $0.07
B)

$0.38

C)

$0.45

D)

$0.52

Ans: B
Feedback:
The price would be expected to drop by the amount investors receive after taxes:
$0.45 × 85% = $0.38

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Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
58. The ex-dividend date: You own 10,000 shares of ABC Co., which is currently trading
for $11.50 per share. The company has announced that it will soon pay a special
dividend of $1.50 per share. Tomorrow is the ex-dividend day. Ignoring taxes, what do
you expect your block of shares will be worth tomorrow?
A) $15,000
B)

$100,000

C)

$115,000

D)

$200,000

Ans: B
Feedback:
With no taxes you expect that the company's stock will drop by $1.50 to $10.00. Your
holdings will be worth 10,000 × $10 = $100,000
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
59. The ex-dividend date: ABC Co. stock is currently trading at $25.70 per share. The
company pays a regular cash dividend of $0.40 every quarter. Tomorrow is ex-dividend
day for the upcoming regular dividend. The tax rate on dividends is 15 percent.
Assuming there is no new information released about the company, how much do you
expect the company's stock to trade for tomorrow?
A) $0.40
B)

$25.24

C)

$25.30

D)

$25.36

Ans: D
Feedback:
The price would be expected to drop by the amount investors receive after taxes:
$0.40 × 85% = $0.34
The new stock price would be $25.70 – $0.34 = $25.36

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Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
60. The ex-dividend date: ABC Co. stock is currently trading at $38.15 per share. The
company pays a regular cash dividend of $0.80 every quarter. Tomorrow is ex-dividend
day for the upcoming regular dividend. The tax rate on dividends is 15 percent.
Assuming there is no new information released about the company, how much do you
expect the company's stock to trade for tomorrow?
A) $37.47
B)

$37.35

C)

$37.32

D)

$37.23

Ans: A
Feedback:
The price would be expected to drop by the amount investors receive after taxes:
$0.80 × 85% = $0.68
The new stock price would be $38.15 – $0.68 = $37.47
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
61. The ex-dividend date: ABC. Co is currently trading at $37.00 per share. The company
is paying a regular cash dividend of $0.40 per share and an extra dividend of $0.10 per
share. Tomorrow is the ex-dividend day. The tax rate on dividends is 15 percent.
Assuming there is no new information released about the company, how much do you
expect the company's stock to trade for tomorrow?
A) $36.43
B)

$36.50

C)

$36.58

D)

$37.00

Ans: C
Feedback:
The price would be expected to drop by the amount investors receive after taxes:
($0.40 + 0.10)× 85% = $0.42
The new stock price would be $37.00 – $0.42 = $36.58

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Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
62. The ex-dividend date: ABC. Co is currently trading at $22.00 per share. The company
is paying a regular cash dividend of $0.30 per share, and an extra dividend of $0.05 per
share. Tomorrow is the ex-dividend day. The tax rate on dividends is 15 percent.
Assuming there is no new information released about the company, how much do you
expect the company's stock to trade for tomorrow?
A) $21.70
B)

$21.65

C)

$21.60

D)

$21.55

Ans: A
Feedback:
The price would be expected to drop by the amount investors receive after taxes:
($0.30 + $0.05)× 85% = $0.30
The new stock price would be $22.00 – $0.30 = $21.70
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
63. Types of dividends: Distressed Capital, Inc., is being liquidated. The company's assets
can be sold for $20 million. It will cost $18 million for the company to meet all its
previous obligations and to payoff debt holders. The company has 30 million shares
outstanding. If you own 2,000 shares, how much do you expect to receive in liquidating
dividends? Ignore taxes.
A) $0.00
B)

$133.33

C)

$266.66

D)

$1,200.00

Ans: B
Feedback:
Shareholders will receive the residual claim after other claimholders have been paid:
20 million – 18 million = 2 million
That 2 million will be distributed pro-rata.
As a holder of 2,000 shares, you will receive:
2 million × (2,000 shares / 30 million shares) = $133.33

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Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
64. Types of dividends: You own 20,000 shares of stock in Casi-knows, Inc., which has
just sold one of its large resort hotels for $300 million. Management intends to return
the entire revenue from the sale to shareholders by issuing a special dividend. If Casiknows has 20 million shares outstanding, how large a dividend payment do you expect
to receive?
A) $20,000
B)

$200,000

C)

$300,000

D)

$1,000,000

Ans: C
Feedback:
The 300 million shares will be distributed pro-rata. You will receive:
$300 million × (20,000 shares / 20 million shares) = $300,000
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
65. Types of dividends: ABC Co. has a policy of returning a minimum of 40 percent of
earnings to shareholders every year through dividend issues and open-market stock
repurchases. In each quarter this year, the company earned $0.35 per share. In each of
the first three quarters the company paid a regular cash dividend of $0.10 per share.
What combination of dividends could the company's board approve to meet their target
payout percentage?
A) A regular cash dividend of $0.10 per share.
B)

A regular cash dividend of $0.10 per share and an extra dividend of 0.56 per
share.
C) A regular cash dividend of $0.10 per share and an extra dividend of $0.46 per
share.
D) A regular cash dividend of $0.10 per share and an extra dividend of $0.16 per
share.
Ans: D

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Feedback:
The company earned $0.35 × 4 quarters = $1.40 per share this year. To achieve the 40
percent target, the firm must distribute $1.40 x 40% = $0.56 per share to shareholders.
The company has already distributed $0.10 × 3 quarters = $0.30 per share.
The company could meet the target by distributing another $0.26 per share through a
regular dividend of 0.10 and an extra dividend of 0.16 per share.
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
66. Types of dividends: ABC Co. has a policy of returning a minimum of 25 percent of
earnings to shareholders every year through dividend issues and open-market stock
repurchases. In each quarter this year, the company earned $0.20 per share. In each of
the first three quarters, the company paid a regular cash dividend of $0.05 per share.
What combination of dividends could the company's board approve to meet their target
payout percentage?
A) A regular cash dividend of $0.05
B)

A regular cash dividend of $0.05 per share and an extra dividend of 0.05 per
share
C) A regular cash dividend of $0.05 per share and an extra dividend of $0.10 per
share
D) A regular cash dividend of $0.05 per share and an extra dividend of $0.20 per
share
Ans: A
Feedback:
The company earned $0.20 × 4 quarters = $0.80 per share this year. To achieve the 25
percent target, the firm must distribute $0.80 × 25% = $0.20 per share to shareholders.
The company has already distributed $0.05 × 3 quarters = $0.15 per share.
The company could meet the target by distributing another $0.05 per share through a
regular dividend.
Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
67. How stock repurchases differ from dividends: ABC Co. has a policy of returning a
minimum of 25 percent of earnings to shareholders every year through dividend issues
and open-market stock repurchases. In each quarter this year, the company earned $0.25
per share. In each of the first three quarters, the company paid a regular cash dividend
of $0.05 per share. The company has 2 million shares of common stock outstanding.
What combination of dividends and stock repurchases could the company's board
approve to meet their target payout percentage?
A) A regular cash dividend of $0.05

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B)

A regular cash dividend of $0.05 per share and an open-market stock repurchase
of $100,000 in stock
C) A regular cash dividend of $0.05 per share and an open-market stock repurchase
of $400,000 in stock
D) A regular cash dividend of $0.05 per share and an open-market stock repurchase
of 500,000 in stock
Ans: B
Feedback:
The company earned $0.25 × 4 quarters = $1.00 per share this year. To achieve the 25
percent target, the firm must distribute $1.00 × 25% = $0.25 per share to shareholders.
The company has already distributed $0.05 × 3 quarters = $0.15 per share. If the
company issues another regular dividend of $0.05 per share, it will still have $0.05 per
share to remaining to be returned to shareholders.
The stock repurchase required to return that value would be (0.05 per share × 2 million
shares) = $100,000 of stock repurchase.
Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Medium
68. How stock repurchases differ from dividends: ABC Co. has a policy of returning a
minimum of 40 percent of earnings to shareholders every year through dividend issues
and open-market stock repurchases. In each quarter this year, the company earned $0.20
per share. In each of the first three quarters, the company paid a regular cash dividend
of $0.05 per share. The company has 8 million shares of common stock outstanding.
What combination of dividends and stock repurchases could the company's board
approve to meet their target payout percentage?
A) A regular cash dividend of $0.05
B)
C)

A regular cash dividend of $0.05 per share and an open-market stock repurchase
of $960,000 in stock
A regular cash dividend of $0.05 per share and a special dividend of $0.12

D)

Both b and c will meet the target payout percentage

Ans: D

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