ACCOUNTING

 

37. To receive a dividend on common stock, an investor must purchase the stock before the ex-dividend date.
True    False

 

38. When a firm which previously paid regular dividends ceases to do so, the stock is ex-dividend until the firm resumes regular dividend payments.
True    False

 

39. Stock dividends usually enhance the overall wealth of an investor.
True    False

 

40. Stock dividends may be utilized to provide information to investors about growing companies.
True    False

 

41. A stock split involves a reduction in the firm’s retained earnings account.
True    False

 

42. Distributions of 20-25% or greater of outstanding shares are generally to be treated as stock splits.
True    False

 

43. Stock splits are usually utilized to place stock in a lower-price trading range.
True    False

 

44. Stock dividends and stock splits have the same impact on retained earnings.
True    False

 

45. A reverse stock split is normally used by those firms whose stock price has been stable for several years.
True    False

 

46. The repurchase of a corporation’s own stock will generally have a negative impact on its price.
True    False

 

47. Firms with extra money should always repurchase their own stock, thus increasing the value of the firm.
True    False

 

48. Dividend reinvestment plans provide the stockholder an opportunity to buy additional shares of stock with the cash dividend paid by the company.
True    False

 

49. Usually with a dividend reinvestment plan an investor may buy fractional shares.
True    False

 

50. By employing a dividend reinvestment plan, a company is assured of always increasing cash flow into the company.
True    False

 

51. The goal of a company in the growth lifecycle stage should be to maximize dividends to shareholders.
True    False

 

52. Investors in the retirement phase of their lifecycle tend to prefer reinvestment of dividends by firms.
True    False

 

53. As tax rates on dividends have decreased, the preference for retention of earnings has increased.
True    False

 

54. One situation in which a stock dividend may be beneficial to the investor is when the cash dividend per share remains constant.
True    False

 

55. A stock dividend is often used when the company has high cash levels, but feels that a stock dividend would be more beneficial to the investors.
True    False

 

56. Leveraged stock repurchases often increase the likelihood of leveraged buyouts by other firms.
True    False

 

57. One way companies responded to the financial crisis of 2008-2009 was to cut their cash dividends to stockholders.
True    False

 

58. For the most part, companies not directly associated with the financial crisis of 2008-2009 did not cut their dividend payments to stockholders.
True    False

 

59. Research shows that firms that repurchase their shares exhibit positive stock price returns.
True    False

 

 

Multiple Choice Questions
60. According to the “marginal principle of retained earnings,” dividends are
A. the active variable.
B. the passive variable.
C. not usually paid.
D. a certain fixed percentage of earnings.

 

61. The marginal principle of retained earnings means that each potential project to be financed by retained earnings must
A. provide a higher rate of return than the stockholders can achieve after paying taxes on the distributed dividends.
B. yield a return equal to or greater than the marginal cost of capital.
C. provide enough return to pay the corporation’s marginal tax rate.
D. have an internal rate of return greater than the corporate growth rate of dividends.

 

62. The major, overall argument against the “marginal principle of retained earnings” is
A. the uncertainty surrounding capital investment projects.
B. the lack of ability to adequately measure corporate investment returns.
C. the diversity of stockholders and their potential investment returns.
D. its failure to consider stockholder preferences.

 

63. The residual theory of dividend policy asserts that
A. sufficient dividends are paid to maintain a stable total dividend payment-any residual is invested internally by the firm.
B. sufficient dividends are paid to maintain a stable dividend payout ratio-any residual is invested internally by the firm.
C. dividends are paid out of the residual remaining after internal investments by the firm.
D. dividend payments are adjusted to maintain dividends at a constant percentage of total cash flows.

 

64. In which phase of the life cycle would one most likely encounter stock dividends?
A. Phase II.
B. Phase III.
C. Phase IV.
D. Phase II and Phase III.

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