65. Which of the following is not true about the life cycle growth and dividend policy?
A. In the maturity stage, a firm usually pays moderate to high dividends.
B. In the development stage, a firm usually pays stock dividends and some low cash dividends.
C. In the expansion stage, a firm pays low to Intermediate cash dividends and occasionally may have stock splits.
D. In the growth stage, a firm pays stock dividends.


66. In Stage II (growth stage), sales and returns on assets will be growing at increasing rates. Which of the following is true?
A. Earnings are now available for large dividends.
B. Stock dividends (additional shares) are quite common.
C. Acquisition of new assets will be stable.
D. The payout ratio will be close to 50% by now.


67. In the maturity stage, a firm
A. is growing about the same rate as the economy as a whole.
B. has returns on assets lower than those of the industry norm.
C. loses market share and suffers a decline in profitability.
D. pays out all earnings in dividends.


68. In the initial stage (Stage I), the corporation
A. has a product yet to be accepted in the marketplace.
B. anticipates rapid growth in sales and earnings.
C. needs all its earnings for reinvestment in new assets.
D. all of these


69. When a firm enters Stage III of its life cycle, all of the following are likely to be observed except which?
A. Dividend payout ratios are likely to rise to a moderate level of 20 to 30 percent of earnings.
B. More competition is likely to enter the firm’s market.
C. Sales begin to decrease.
D. Stock splits are common.


70. When a firm enters Stage IV of its life cycle,
A. Dividend payout ratios are likely to rise to a moderate level of 20 to 30 percent of earnings.
B. The firm has reached maturity.
C. The organization must retain earnings in preparation for cycling back into Stage I of the life cycle.
D. Stock splits are common.


71. Stockholders may prefer dividends to reinvestment by the firm
A. because dividends resolve some uncertainty.
B. because dividend payments have an information content.
C. because investors may prefer current cash to future cash.
D. all of these


72. A major desire of stockholders regarding dividend policy is
A. frequent stock dividends.
B. dividend stability.
C. high payouts when earnings are up and lower payouts when earnings are down.
D. payment of dividends at frequent intervals.


73. Which of the following does not affect a company’s dividend policy?
A. Legal rules concerning capital impairment
B. The efficient market hypothesis
C. Access to capital markets
D. Tax position of shareholders


74. Firm X has declared a stock dividend that pays one share of stock for every 5 shares owned. After the stock dividend, earnings per share will
A. remain the same.
B. decline 20%.
C. decline 5%.
D. not enough information.


75. The Tax Relief Act of 2003
A. taxes dividend and long-term capital gains at the same rate.
B. taxes short-term and long-term capital gains at the same rate.
C. eliminated the tax rate on dividends to avoid double taxation.
D. made high dividend paying stock less attractive to high income investors.


76. Which of the following generally does not influence the dividend policy of the firm?
A. Cash position of the firm
B. Desire for control
C. Seasonal changes in the level of income
D. Investor’s expectations of the future based on dividend policy


77. Lucas, Inc. earned $15 million last year and retained $6 million. Lucas has 5 million shares outstanding, and the current price of Lucas shares is $30 per share. What is the payout ratio?
A. 2.67%
B. 4%
C. 40%
D. 60%


78. Mirrlees Furniture earned $750,000 last year and had a 30 percent payout ratio. How much did the firm add to its retained earnings?
A. $225,000
B. $525,000
C. There is not enough information to tell.
D. None of these


79. The ex-dividend date is the date
A. on which recipients of the dividend are determined.
B. the dividend is paid.
C. the dividend is declared.
D. which no longer includes dividend payments for stock bought on that date.


80. According to the law, dividends may be funded from:
A. past earnings.
B. current earnings.
C. future earnings.
D. Only a and b.


81. A stock dividend will
A. increase the value of a share of stock.
B. decrease the capital in excess of par account.
C. decrease the retained earnings account.
D. none of these.


82. A stock dividend will
A. increase the total value of stockholders’ equity.
B. decrease the total value of stockholders’ equity.
C. not affect the total value of stockholders’ equity.
D. change the total value of stockholders’ equity but the direction cannot be determined unless the market price and par value is known.


83. CBA Inc has 400,000 shares outstanding with a $5 par value. The shares were issued for $12. The stock is currently selling for $34. CBA has $5,000,000 in retained earnings and has declared a stock dividend that will increase the number of outstanding shares by 6%. What will be the capital in excess of par account after the stock dividend?
A. $7,685,000
B. $2,685,000
C. $3,496,000
D. $2,385,000


84. The primary purpose of a stock split is to
A. indicate the firm’s desire to retain funds.
B. increase the investor’s overall wealth.
C. reduce the threat of a takeover by creating more shares.
D. bring the stock price to a lower trading range.


85. Which of the following balance sheet accounts will be affected by a stock dividend but not by a stock split?
A. Retained earnings
B. Cash
C. Common stock
D. Dividends-in-arrears


86. A 2-for-1 stock split is declared. In this case which of following statements is true?
A. The cash account declines.
B. The common stock account rises.
C. The retained earnings fall.
D. The par value of the common stock is reduced.


87. The stockholders’ equity section of the balance sheet of the XYZ Corp. is as follows:

If the company now splits its stock 3-for-1, which of the following is correct?
A. The par value per share will remain at $6.
B. The market price per share will probably remain unchanged.
C. The book value per share will decline to $17.60.
D. The par value per share will decline to $2.00.


88. A stock split
A. is treated by accountants just like a stock dividend.
B. reduces the retained earnings account.
C. does not change the amount in the common stock account.
D. increases corporate wealth.


89. At what payout percentage is a stock dividend considered a stock split?
A. 10%
B. 15%
C. 25%
D. 33%


90. A reverse stock split
A. occurs when a company wants to increase the price of its common stock because the market hasn’t recognized the improvements the company has made in achieving profitability.
B. exchanges fewer new shares of common for old shares of common stock.
C. will not change earnings per share.
D. is more popular in bull markets than in bear markets.

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