no effect correct answers MM argue that a firm's dividend policy has ___ ___ on a stock's price
dividends; capital gains correct answers Gordon and Lintner hypothesize that investors value a dollar of ____ more highly that a dollar of ____ _____.
payout correct answers A company may be forced...
FIN6406 || QUESTIONS WITH CORRECT
SOLUTIONS.
no effect correct answers MM argue that a firm's dividend policy has ___ ___ on a stock's
price
dividends; capital gains correct answers Gordon and Lintner hypothesize that investors value
a dollar of ____ more highly that a dollar of ____ _____.
payout correct answers A company may be forced to increase its ____ ratio in order to avoid
a tax on retained earnings deemed to be unnecessary for the conduct of the business
capital gains; income correct answers Some stockholders prefer dividends to ____ ____
because of a need for current ____.
price (value); information correct answers If the ____ of a firms stock increases with the
announcement of an increase in dividends, it may be due to the ____ content in the dividend
announcement rather than to a preference for dividends over capital gains.
volatile (fluctuating) correct answers A firm with ____ earnings is most appropriate for using
the policy of "extra" dividends
holder- of - record correct answers The stock transfer books of a corporation are closed on the
___ ___ ___ date
ex-dividend; holder- of- record correct answers The ___ ___ date occurs two days prior to the
___ ___ ___ date and provides time for stock transfers to be recorded on the firm's books
payment; board of directors correct answers Actual payment of a dividend is made on the ___
date as announced by the ___ ___ ___.
dividends reinvestment correct answers Many firms have instituted ____ ____ plans whereby
stockholders can use their dividends to purchase additional shares of the company's stock.
par value correct answers A stock split involves a reduction in the ___ ___ of the common
stock, but no accounting transfers are made between accounts.
clientele correct answers The assumption that some investors prefer a high dividend payout
while others prefer a low payout is called the ____ effect.
more costly correct answers The residual distribution policy is based on the fact that new
common stock is ___ ___ than retained earnings.
treasury stock correct answers Stock repurchased by the firm that issued it is called ___ ___.
Distributive policy correct answers ___ ____ involves the decision to distribute earnings
versus retaining them for reinvestment of the firm.
, target distributive policy correct answers The ___ ___ ___ is defined as the percentage of net
income to be distributed either as cash dividends or stock repurchase.
tax effect correct answers The ___ ___ theory states that investors may prefer to have
companies retain most of their earnings because of various tax advantages.
stability correct answers Dividend ___ has two components: 1. how dependable is the growth
rate and 2. can we count on at least receiving the current dividend in the future?
residual distribution policy correct answers The ___ ___ ___ is based on the premise that
investors prefer to have a firm retain and reinvest earnings rather than distribute them to
shareholders as dividends or stock repurchases, if the rate of return the firm can earn on
reinvested earnings exceeds the rate of return investors can obtain for themselves on other
investments of comparable risk.
open enrollment correct answers Some companies have expanded their DRIPs by moving to
___ ____ whereby anyone can purchase the firm's stock directly and bypass brokers'
commissions.
capital structure; capital budgeting correct answers The distribution decision is made jointly
with ___ ___ and ___ ___ decisions.
stock repurchases correct answers ___ ___ are an alternative to dividends for transmitting
cash to stockholders.
False correct answers T/F An increase in cash dividends will always result in an increase in
the price of the common stock.
E- none of the above correct answers A stock split will affect the amounts shown in which of
the following balance sheet accounts?
Common stock
Pain in capital
Retained Earnings
Cash
None of the above
C- rs will increase as the payout ratio is reduced correct answers If investors prefer dividends
to capital gains:
a- the req rate of ret on equity, rs, will not be affected by a change in dividend policy
b- the cost of capital will not be affected by a change in dividend policy
c- rs will increase as the payout ratio is reduced
d- rs will decrease as the retention rate increases
e- a policy conforming to the residual dividend model will maximize stock price
b- according to proponents of the dividend irrelevance theory, if a company's stock price rises
after the firm announces a greater than expected dividend increase, the price increase occurs
because of signaling effects, not because of investor's preferences for dividends over capital
gains. correct answers Which of the following statements is most correct?
a- MM theory of the effect of dividend policy on the value of a firm has been called the bird
in the hand theory because MM argued that a dividend in the hand is less risky than a
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