1. Which of the following is not a reason that DeStore.

com would prefer to pay a stock dividend

a)It decreases the supply of shares and enhances shareholder wealth.

b)It may conserve cash for other firm needs.

c)It will reduce the stock price into what management perceives as a more beneficial
trading range.

d)It may convey information about the firm to investors that it cannot convey credibly
otherwise.

2. The ____ is the proportion of earnings that are paid to common shareholders in the form of a
cash dividend.
a)retention rate
b)1 plus the retention rate
c)growth rate
d)dividend payout ratio
3. The dividend-payout ratio is equal to
a)the dividend yield plus the capital gains yield.
b)dividends per share divided by earnings per share.
c)dividends per share divided by par value per share.
d)dividends per share divided by current price per share
4. The Board of Directors announces the amount and date of the next dividend on the ____ date;
while the ____ date is the first date on which the purchaser of a stock is no longer entitled to
the recently declared dividend.
a)declaration; record
b)ex-dividend; record
c)declaration; ex-dividend
d)payment; record
5. Which of the following is an argument for the relevance of dividends?
a)Informational content.
b)Reduction of uncertainty.
c)Some investors' preference for current income.
d)All of the above.
6. ____ is a nonrecurring dividend paid to shareholders in addition to the regular dividend.
a)A stock split
b)A stock dividend
c)An extra dividend
d)A regular dividend
7. According to the authors of your text, the repurchase of stock is considered ____ decision rather
than ____ decision.
a)an investment; a financing
b)a financing; an investment
c)an investment; a dividend
d)a dividend; a financing
8. If an individual stockholder reinvests dividends under a company's dividend reinvestment plan,
the reinvested dividends are
a)not taxable to the shareholder.
b)taxable to the shareholder.
9. Modigliani and Miller argue that the dividend decision ____.
a)is irrelevant as the value of the firm is based on the earning power of its assets
b)is relevant as the value of the firm is not based just on the earning power of its assets
c)is irrelevant as dividends represent cash leaving the firm to shareholders, who own the firm
anyway
d)is relevant as cash outflow always influences other firm decisions
10. Because various governmental bodies prepare approved (or legal) lists of securities in which
certain institutions (like pension funds) may invest, companies whose securities appear on these
lists ____.
a)will think twice before cutting or eliminating a dividend because that will cause them to be
removed from the lists.
b)do not have to worry about whether they pay a dividend or not because they have been pre-
approved.
c)will want to follow a strictly passive dividend policy.
d)are legally authorized to substitute stock dividends for cash dividends.
11. All of the following are true of stock splits EXCEPT:
a)market price per share is reduced after the split.
b)the number of outstanding shares is increased.
c)retained earnings are changed.
d)proportional ownership is unchanged.
12. Firm Pickemon, Inc. has had earnings of $3.20, $3.00, and $5.50 per share for the past three
years. The firm anticipates maintaining the same dividend policy this year as the past three
years. That dividend policy has resulted in dividends per share of $1.28, $1.20, and $2.20 for the
past three years. It is anticipated that the next year will result in a large increase in earnings to
$9.80 per share. What dividend do you expect the firm to pay in the next year?
a)$3.92
b)$1.56
c)$3.12
d)$4.68
13. Investors may be willing to pay a premium for stable dividends because of the informational
content of ___, the desire of investors for ____, and certain _____.
a)institutional considerations; dividends; current income.
b)dividends; current income; institutional considerations.
c)current income; dividends; institutional considerations.
d)institutional considerations; current income; dividends.
14. A dividend reinvestment plan (DRIP) is ____.
a)an optional plan, provided by brokerage firms, allowing shareholders to automatically reinvest
dividend payments in additional shares of the firm's stock.
b)an optional plan, provided by large corporate firms, allowing shareholders to automatically
reinvest dividend payments in additional shares of the firm's stock.
 c)a mandatory plan, provided by brokerage firms, where shareholders are automatically
reinvesting dividend payments in additional shares of the firm's stock at a reduced price.
d)a mandatory plan, provided by large corporate firms, where shareholders are automatically
reinvesting dividend payments in additional shares of the firm's stock at a reduced price
15. Retained earnings are
1. a)an indication of a company's liquidity.
2. b)the same as cash in the bank.
a. the cumulative earnings of the company after dividends
16. If Ian O'Connor Enterprises, Inc., repurchased 50 percent of its outstanding common stock from
the open (secondary) market, the result would be
a)a decline in EPS.
b)an increase in cash.
c)a decrease in total assets.
d)an increase in the number of stockholders
17. A(n) ____ is the expected cash dividend that is normally paid to shareholders.
a)stock split
b)stock dividend
c)extra dividend
d)regular dividend
18. A number of legal rules help to establish the legal boundaries within which a firm's finalized
dividend policy can operate. These legal rules have to do with capital impairment, insolvency,
and undue retention of earnings. Some states have a (an) ____ rule, while the Internal Revenue
Service has a (an) ____ rule.
a)capital impairment; insolvency
b)undue retention of earnings; insolvency
c)insolvency rule; capital impairment
d)capital impairment (or insolvency); undue retention of earnings
19. "Large-percentage stock dividends" are typically ____ percent or higher of previously
outstanding common stock.
a)25
b)35
c)51
d)70
20. What method of stock repurchase occurs when the buyer purchases securities through a
brokerage house?
a)Dutch-auction
b)Fixed-price
c)Open-market
d)Fair-warning
21. The shareholders of your firm anticipate receiving a regular dividend that is consistent with past
dividend policies. What benefit occurs to shareholders if the firm repurchases shares with the
same total quantity of money that would have been spent on dividends? Assume that the P/E
ratio is maintained with either scenario.
a)Shareholders can postpone or reduce taxes (assuming a lower capital gain rate).
 b)It is cheaper for shareholders to sell existing shares for cash than it costs to reinvest cash
dividends into existing shares.
c)The current shareholders benefit because there are a greater number shareholders than if the
firm pays a cash dividend.
d)There is no benefit as shareholders will not be receiving any cash.
22. An offer by a firm to repurchase some of its own shares is known as
a)a DRIP.
b)a self-tender offer.
c)a reverse split.
23. Which of the following examples best represents a passive dividend policy?
a)The firm sets a policy such that the proportion of dividends paid from net income remains
constant.
b)The firm pays dividends with what remains of net income after taking acceptable investment
projects.
c)The firm sets a policy such that the quantity (dollar amount per share) of dividends paid from
net income remains constant.
d)All of the above are examples of various types of passive dividend policies.
24. A(n) __________ is a payment of additional shares to shareholders in lieu of cash.
stock dividend
25. Financial signaling has been raised as an argument in the battle over the relevancy of dividends.
Which of the following statements concerning dividends is most likely to be voiced by someone
using the financial signaling argument?
Cash dividends speak louder than words when it comes to conveying information about
management's expectations of the future
26. On May 7, Melbourne Mining declared a $.50-per-share quarterly dividend payable June 28 to
stockholders of record on Friday, June 7. What is the latest date by which you could purchase
the stock and still get the recently declared dividend?
June 4
27. A(n) __________ is a payment of additional shares to shareholders in lieu of cash.

stock dividend
28. What method of stock repurchase occurs when the buyer seeks bids within a specified price
range and accepts the lowest price that will allow it to acquire the entire block of securities
desired?
Dutch-auction
29.