1 Under the marginal principle of retained earnings: A) the firm must compare what it can earn with what

shareholders could earn on funds if they were distributed B) all funds above and beyond retained earnings are paid to shareholders C) funds not paid to creditors and preferred shareholders belong to common shareholders D) all projects are financed internally 2 Which of the following statements is correct: A) Dividend amounts are first determined, and the residual retained B) In achieving the highest overall return, dividends are irrelevant C) Most shareholders prefer retained earnings over dividends D) There is conclusive proof that investors prefer dividends over retained earnings Dividends may be considered relevant because: A) they increase the investor's overall return B) a higher return will be earned than with retained earnings C) they are preferred by investors in higher ta brac!ets D) they resolve uncertainty in the minds of investors ! Most of the firm's shareholders will prefer: A) floating dividends that vary with the firm's performance B) stable dividends over time C) that funds be reinvested as retained earnings D) stoc! dividends " "y maintaining a relatively stable dividend level, the firm: A) hopes to increase holdings of its common shares B) hopes to decrease holdings of its common shares C) hopes to increase the discount rate applied to future dividends D) hopes to decrease the discount rate applied to future dividends # The directors of a small, closely held corporation may be reluctant to pay dividends at all because: A) the dividends will be ta ed at a higher rate B) they fear diluting the cash position of the firms C) they haven't the means to do a complete funds flow analysis D) they fear a shareholder pro y battle $ Wealthier shareholders tend to prefer: A) a high dividend payout ratio B) short term capital gains C) floating rate dividends D) capital appreciation % # corporation will typically pay the highest dividends in: A) Development $ %tage & B) 'rowth $ %tage && C) ( pansion $ %tage &&& D) &aturity ' (tage I) * # corporation will typically pay moderate dividends in: A) Development $ %tage & B) 'rowth $ %tage && C) +,pansion ' (tage III D) Maturity $ %tage &) 1- #ll of the following are characteristics of the e pansion stage of corporate growth e cept:

A) B) C) D)

sales e pansion continues, but at a decreasing rate returns on investment decline the asset e,pansion rate increases the firm is better able to pay higher cash dividends

11 #ll of the following are !ey dates associated with the declaration of a dividend e cept: A) the e $dividend date B) the holder of record date C) the payment date D) the dividend receipt date 12 Dividends are *uoted +++++++++++++, but paid+++++++++++++++: A) *uarterly, annually B) annually, .uarterly C) annually, semi$annually D) annually, monthly 1 &n chronological order, which of the following is correct, A) e,'dividend date, holder of record date, payment date B) holder of record date, e $dividend date, holder of record date C) payment date, e $dividend date, holder of record date D) holder of record date, payment date, e $dividend date 1! # stoc! dividend: A) represents a distribution of additional shares to common shareholders B) differs from a stoc! split largely in si-e C) normally has no real value to the investor D) all of the above are correct 1" &f a firm repurchases it own stoc!: A) in theory, the action is e.uivalent to paying cash dividends B) the price of the stoc! is lowered into a more popular trading range C) shareholders benefit less than with a stoc! split D) shareholders benefit less than with a stoc! dividend ./ &f the firm can invest in projects with positive 01)s, which suggests that investor e pectations are not only met but e ceeded, funds should be retained/ 2efer to te t page 345/ 6/ Most firms conduct a marginal analysis of investment opportunities first, then consider the preferences of shareholders/ 2efer to te t page 378/ 4/ Dividends help resolve uncertainty in the eyes of the investors/ %ome say if a firm pays out dividends, it is sharing the wealth with the shareholders/ 2efer to te t page 376 7/ # primary factor in dividend policy is the maintenance of stability of dividend payments/ 2efer to te t page 379/ 9/ "y !eeping dividends stable, the firm hopes to lower the discount rate applied to dividends thus raising the value of the firm/ 2efer to te t page 373/ 3/ Managers are reluctant at times to issue dividends due to the dilution effect they may have which may force owners to loo! elsewhere for financing/ 2efer to te t page 37:/ ;/ "y retaining the funds instead of paying our dividends, a company can create future growth thus allowing the investor to pay ta es on the capital appreciation some time in the future rather than today as with dividends/ 2efer to te t page 37:/ :/ &t is during %tage &) that dividends range from 78<$38< of earnings, the highest of all stages/ 2efer to te t page 398/ 5/ &n %tage && low dividends are paid and it is not until the asset e pansion rate slows in %tage &&& can the e tra cash be used to raise the dividends to a moderate level/ 2efer to te t page 398/ .8/ During %tage &&&, the e pansion stage, the asset e pansion rate declines and the e ternal funds become readily available/ 2efer to te t page 398/ ../ The announcement and payment dates of dividends are the most important dates in the dividend procedure/ &t is less important when the investor receives the dividend/ 2efer to te t page 39./

.6/ The actual payment of dividends is spread out over four *uarters whereas it is *uoted on an annual basis/ 2efer to te t page 39./ .4/ The e $dividend date is two business days before the holder$of$record date/ The payment date occurs after the holder on record is determined/ 2efer to te t page 39./ .7/ # stoc! dividend provides the investor with additional shares in the company, but does nothing to increase the value of the firm/ Ta es are paid on stoc! dividends/ 2efer to te t page 394/ .9/ %hare repurchases are often announced to demonstrate management's faith in the future prospects of the company or to return capital to shareholders because of lac! of investment opportunities for the firm/ 2efer to te t page 393/ 1. 2etained earning are an indication of a company's li*uidity/ the same as cash in the ban!/ not important when determining dividends/ the cumulative earnings of the company after dividends/ 2. Which of the following is an argument for the relevance of dividends, &nformational content/ 2eduction of uncertainty/ %ome investors' preference for current income/ All of the above/ 3. #ll of the following are true of stoc! splits +0C+123 mar!et price per share is reduced after the split/ the number of outstanding shares is increased/ retained earnings are changed/ proportional ownership is unchanged/ 4. &f &an ='>onnor (nterprises, &nc/, repurchased 98 percent of its outstanding common stoc! from the open ?secondary@ mar!et, the result would be a decline in (1%/ an increase in cash/ a decrease in total assets/ an increase in the number of stoc!holders/ 5. =n May ;, Melbourne Mining declared a A/98$per$share *uarterly dividend payable Bune 6: to stoc!holders of record on Criday, Bune ;/ What is the latest date by which you could purchase the stoc! and still get the recently declared dividend, Bune 4 4une ! Bune 9 Bune 3 6. #n offer by a firm to repurchase some of its own shares is !nown as a D2&1/ a self'tender offer/ a reverse split/ 7. &f an individual stoc!holder reinvests dividends under a company's dividend reinvestment plan, the reinvested dividends are not ta able to the shareholder/ ta,able to the shareholder/ 8. The dividend-payout ratio is e*ual to the dividend yield plus the capital gains yield/ dividends per share divided by earnings per share/ dividends per share divided by par value per share/ dividends per share divided by current price per share/