Managerial Finance
Managerial Finance – Problem Review Set – Dividends Policy
1)
If a firm adopts a residual distribution policy, distributions are determined as a residual after funding the capital budget. Therefore, the better the firm's investment opportunities, the lower its payout ratio should be.
a. True
b. False
2)
Even if a stock split has no information content, and even if the dividend per share adjusted for the split is not increased, there can still be a real benefit (i.e., a higher value for shareholders) from such a split, but any such benefit is probably small.
a. True
b. False
3)
Which of the following should NOT influence a firm’s dividend policy decision?
a. The firm’s ability to accelerate or delay investment projects.
b. A strong preference by most shareholders for current cash income versus capital gains.
c. Constraints imposed by the firm’s bond indenture.
d. The fact that much of the firm’s equipment has been leased rather than bought and owned.
e. The fact that Congress is considering changes in the tax law regarding the taxation of dividends versus capital gains.
4)
Which of the following would be most likely to lead to a decrease in a firm’s dividend payout ratio?
a. Its earnings become more stable.
b. Its access to the capital markets increases.
c. Its R&D efforts pay off, and it now has more high-return investment opportunities.
d. Its accounts receivable decrease due to a change in its credit policy.
e. Its stock price has increased over the last year by a greater percentage than the increase in the broad stock market averages.
5)
If a firm adheres strictly to the residual dividend policy, then if its optimal capital budget requires the use of all earnings for a given year (along with new debt according to the optimal debt/total assets ratio), then the firm should pay
a. no dividends except out of past retained earnings.
b. no dividends to common stockholders.
c. dividends only out of
1)
If a firm adopts a residual distribution policy, distributions are determined as a residual after funding the capital budget. Therefore, the better the firm's investment opportunities, the lower its payout ratio should be.
a. True
b. False
2)
Even if a stock split has no information content, and even if the dividend per share adjusted for the split is not increased, there can still be a real benefit (i.e., a higher value for shareholders) from such a split, but any such benefit is probably small.
a. True
b. False
3)
Which of the following should NOT influence a firm’s dividend policy decision?
a. The firm’s ability to accelerate or delay investment projects.
b. A strong preference by most shareholders for current cash income versus capital gains.
c. Constraints imposed by the firm’s bond indenture.
d. The fact that much of the firm’s equipment has been leased rather than bought and owned.
e. The fact that Congress is considering changes in the tax law regarding the taxation of dividends versus capital gains.
4)
Which of the following would be most likely to lead to a decrease in a firm’s dividend payout ratio?
a. Its earnings become more stable.
b. Its access to the capital markets increases.
c. Its R&D efforts pay off, and it now has more high-return investment opportunities.
d. Its accounts receivable decrease due to a change in its credit policy.
e. Its stock price has increased over the last year by a greater percentage than the increase in the broad stock market averages.
5)
If a firm adheres strictly to the residual dividend policy, then if its optimal capital budget requires the use of all earnings for a given year (along with new debt according to the optimal debt/total assets ratio), then the firm should pay
a. no dividends except out of past retained earnings.
b. no dividends to common stockholders.
c. dividends only out of