Question 1

For the most part, companies not directly associated with the financial crisis of 2008-2009 did not cut their dividend payments to stockholders.

Accepted Answer

A) True 
 B)False

Question 2

In Stage I of a firm's life cycle, the firm will pay high dividends to shareholders in order to attract additional investors.

Accepted Answer

A) True 
 B)False

Question 3

Firms with extra money should always repurchase their own stock, thus increasing the value of the firm.

Accepted Answer

A) True 
 B)False

Question 4

At what payout percentage is a stock dividend typically considered a stock split, in accordance with the recommendation of the Financial Accounting Standards Board?

Accepted Answer

A)   10%
B)   15%
C)   25%
D)   33%E) A) and B)
F) A) and C)

Question 5

Lucas Inc. earned $15 million last year and retained $6 million. Lucas has 5 million shares outstanding, and the current price of Lucas shares is $30 per share. What is the dividend payout ratio?

Accepted Answer

A)   2.67%
B)   4%
C)   40%
D)   60%E) All of the above
F) A) and D)

Question 6

A stock dividend will

Accepted Answer

A)   increase the value of a share of stock.
B)   decrease the "capital in excess of par" account.
C)   decrease the retained earnings account.
D)   none of these options are correct.E) A) and B)
F) B) and C)

Question 7

Stockholders may prefer cash dividends to reinvestment

Accepted Answer

A)   because dividends may resolve some uncertainty.
B)   because dividend payments have an information content.
C)   because investors may prefer current cash to future cash.
D)   all of these options are correct.E) C) and D)
F) All of the above

Question 8

Stock dividends may be utilized to provide information to investors about growing companies.

Accepted Answer

A) True 
 B)False

Question 9

Some dividend reinvestment plans allow the stockholder to acquire shares of stock

Accepted Answer

A)   from the company's unissued shares.
B)   in the market through the company's transfer agent.
C)   at a discount from the market price.
D)   all of these options are correct.E) A) and B)
F) B) and C)

Question 10

To receive a dividend on common stock, an investor must purchase the stock before the ex-dividend date.

Accepted Answer

A) True 
 B)False

Question 11

The major drawback to an investor is that dividends are viewed as a passive variable, so a fixed income is never guaranteed.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following balance sheet accounts will be affected by a stock dividend but not by a stock split?

Accepted Answer

A)   Retained earnings
B)   Cash
C)   Common stock
D)   Dividends-in-arrearsE) C) and D)
F) A) and B)

Question 13

The goal of a company in the growth life-cycle stage should be to maximize dividends to shareholders.

Accepted Answer

A) True 
 B)False

Question 14

In the initial stage (Stage I) , the corporation

Accepted Answer

A)   has a product yet to be accepted in the market place.
B)   anticipates rapid growth in sales and earnings.
C)   needs all its earnings for reinvestment in new assets.
D)   all of these options are true.E) A) and B)
F) All of the above

Question 15

A firm with excess cash and few investment alternatives might logically

Accepted Answer

A)   declare a stock dividend.
B)   split its stock two-for-one.
C)   repurchase some of its own shares.
D)   choose to issue preferred stock.E) A) and B)
F) A) and C)

Question 16

Under current tax law (2013), long-term capital gains are taxed at a lower rate than "ordinary" dividends.

Accepted Answer

A) True 
 B)False

Question 17

One of the major influences on dividends is the corporate growth rate in sales and the subsequent return on assets.

Accepted Answer

A) True 
 B)False

Question 18

Retained earnings accurately portray the liquidity position of the firm.

Accepted Answer

A) True 
 B)False

Question 19

A general rule of thumb would be that firms with a faster growth rate have smaller dividend payout ratios.

Accepted Answer

A) True 
 B)False

Question 20

The dividend yield is the cash dividend divided by the current market price of the stock.

Accepted Answer

A) True 
 B)False

Exam 18: Dividend Policy and Retained Earnings

Retained earnings accurately portray the liquidity position of the firm.

Correct AnswerverifiedShow Answer

Stock dividends may be utilized to provide information to investors about growing companies.

Correct AnswerverifiedShow Answer

Stockholders may prefer cash dividends to reinvestment

Correct AnswerverifiedShow Answer

The goal of a company in the growth life-cycle stage should be to maximize dividends to shareholders.

Correct AnswerverifiedShow Answer

To receive a dividend on common stock, an investor must purchase the stock before the ex-dividend date.

Correct AnswerverifiedShow Answer

Firms with extra money should always repurchase their own stock, thus increasing the value of the firm.

Correct AnswerverifiedShow Answer

The major drawback to an investor is that dividends are viewed as a passive variable, so a fixed income is never guaranteed.

Correct AnswerverifiedShow Answer

At what payout percentage is a stock dividend typically considered a stock split, in accordance with the recommendation of the Financial Accounting Standards Board?

Correct AnswerverifiedShow Answer

In Stage I of a firm's life cycle, the firm will pay high dividends to shareholders in order to attract additional investors.

Correct AnswerverifiedShow Answer

A general rule of thumb would be that firms with a faster growth rate have smaller dividend payout ratios.

Correct AnswerverifiedShow Answer

Under current tax law (2013), long-term capital gains are taxed at a lower rate than "ordinary" dividends.

Correct AnswerverifiedShow Answer

A firm with excess cash and few investment alternatives might logically

Correct AnswerverifiedShow Answer

For the most part, companies not directly associated with the financial crisis of 2008-2009 did not cut their dividend payments to stockholders.

Correct AnswerverifiedShow Answer

The dividend yield is the cash dividend divided by the current market price of the stock.

Correct AnswerverifiedShow Answer

One of the major influences on dividends is the corporate growth rate in sales and the subsequent return on assets.

Correct AnswerverifiedShow Answer

Some dividend reinvestment plans allow the stockholder to acquire shares of stock

Correct AnswerverifiedShow Answer

In the initial stage (Stage I) , the corporation

Correct AnswerverifiedShow Answer

Lucas Inc. earned $15 million last year and retained $6 million. Lucas has 5 million shares outstanding, and the current price of Lucas shares is $30 per share. What is the dividend payout ratio?

Correct AnswerverifiedShow Answer

A stock dividend will

Correct AnswerverifiedShow Answer

Which of the following balance sheet accounts will be affected by a stock dividend but not by a stock split?

Correct AnswerverifiedShow Answer

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