1. Which of the following is a good reason for a firm to
repurchase stock?
2. Dividends are formally declared by;
a. shareholder vote.
b. upper management.
c. the board of directors.
3. The payment of cash dividends to corporate stockholders is
decided by the __________.
a. top management
b. board of directors
c. shareholders
4. A company might initiate a stock split to __________.
a. change capital structure
b. return funds to shareholders
c. keep the share price in an optimal trading range
5. A __________ lowers the market price of a firm’s stock by
increasing the number of shares outstanding.
a. stock repurchase
b. cash dividend
c. stock split
6. Stockholders who purchase the stock after the will
not receive the dividend payment.
a. ex-dividend date
b. date of record
c. declaration date
7. Share repurchases can be considered a form of __________.
a. dividend reinvesting policy
b. financing policy
c. management incentive
8. Investors can prefer different types of dividend policies due to
differences in __________.
a. marital status
b. income levels
c. education
9. The purpose of a stock split is to __________.
a. change the firm’s capital structure
b. raise the market price of the stock
c. lower the market price of the stock
10. A(n) __________ is used when the firm wants to complete
the buyback faster.
a. negotiated repurchase
FIN 300 Chapter 16 Dynamic Study
a. Decreasing the market value of shares
b. Enhancing shareholder value
c. Encouraging takeover by another firm
b. tender offer repurchase
c. open market repurchase
11. When common stock is repurchased and retired the
underlying motive is to;
a. raise the market price of the stock.
b. distribute excess cash to the owners.
c. reduce the stock’s dividends.
12. Tyler Weinrich, a single investor in the 15% federal tax
bracket, owns 150 shares of Newmont Exploration. The stock
has risen from its price of $40 a share to $75 a share. Because
the board of directors believes that Newmont Exploration will
be more actively traded in the $40 to $60 range, it has just
announced a 3-for-2 stock split. Assuming no other information
came out about Newmont Exploration, how many shares would
Tyler have and what would be their price after the split?
a. 225 shares, at $50 per share (Tyler will receive 3 new shares for
every 2 shares he currently owns but the total value of his
holdings will remain unchanged. The value of his current holdings
is $75 x 150 shares = $11,250. After the split he will have 150 x
3 / 2 = 450 / 2 = 225 shares of stock. $11,250 / 225 shares =
$50 per share for the new price.)
b. 100 shares, at $50 per share
c. 225 shares, at $60 per share
13. Modigliani and Miller argue that when the firm has no
acceptable investment opportunities it should __________.
a. keep the unneeded funds for the future
b. lower its cost of capital
c. distribute the unneeded funds to the owners
14. When dividends are taxed at the same rate as ordinary
income most investors will prefer;
a. a combination of cash dividends and share repurchases
b. cash dividends
c. share repurchases
15. A firm has after-tax earnings of $2,000,000 and has
declared a cash dividend of $600,000. The firm’s dividend
payout ratio is __________.
a. 30
b. 120%
c. 70%
16. Pear Computer Imaging announced that it will pay a $2.00
per share dividend. The firm will pay the dividend to all
shareholders __________.
a. who own the stock on the payable date
b. of record on the date of record
c. who own the stock on the declaration date
17. When firms reduce dividends it typically results in;
a. an increase in share price.
b. share price falling.
c. investor optimism.
18. A firm’s __________ policy determines the amount and
timing of cash distributions to shareholders.
a. dividend
b. cash distribution
c. repayment
19. Hona owns 200 shares of Firm X stock. How many shares
will she have after the recently declared 15% stock dividend is
completed?
a. 200
b. 170
c. 230
20. The most common method used to repurchase stock is
a(n);
a. tender offer.
b. open market repurchase.
c. negotiated repurchase.
21. The fraction of earnings a firm distributes to shareholders
in the form of a cash payment is known as the;
a. dividend payout ratio.
b. retention ratio.
c. earnings distribution ratio.
22. The __________ is the day the board of directors formally
announces a dividend payment.
a. declaration date
b. date of record
c. ex-dividend date
23. In theory, stock dividends should;
a. have no impact on stock price.
b. increase share price.
c. decrease share price.
24. A(n) __________ occurs when the firm buys stock back from
one or more major shareholders.
a. tender offer repurchase
b. negotiated repurchase
c. open market repurchase
25. Stock transfer agent books are closed on
the so firms determine who receives the dividend
on this date.
a. ex-dividend date
b. date of record
c. declaration date
