Practice MCQ Chapter 17
1. The day on which the owners of a firm are ascertained for dividend purposes is called the:
A. Declaration date.
B. Date of record.
C. Payment date.
D. Ex-dividend date.
E. Cum-dividend date.
2. The observed empirical fact that stocks attract particular investors based on the firm's dividend policy
and the resulting tax impact on investors is called the _________________.
A. information content effect
B. clientele effect
C. efficient Markets Hypothesis
D. M&M Proposition I
E. M&M Proposition II
3. An alternative to a cash dividend payment by the firm from its earnings to the shareholders, achieved
by the firm buying some of its outstanding stock on the open market, is a:
A. Merger.
B. Tender offer.
C. Payment-in-kind.
D. Stock split.
E. Share repurchase.
4. A residual dividend is a payment to shareholders that:
A. Occurs on a regular quarterly basis and normally remains constant in amount.
B. Is paid in addition to the normal quarterly distribution amount.
C. Is paid only from funds remaining after all positive net present value projects have been funded.
D. Represents the funds remaining after a partial liquidation has been used to reduce debt.
E. Occurs based on funds generated from an unusual one-time event.
5. The issuance of one new share of stock to replace three outstanding shares is called a:
A. Stock dividend.
B. Stock split.
C. Reverse stock dividend.
D. Reverse stock split.
E. Stock repurchase.
6. The term given to an event that causes the value of a stock to decline by two-thirds while the total
market value of the equity remains constant is:
A. Reverse stock split.
B. Reverse stock dividend.
C. Stock repurchase.
D. Stock dividend.
E. Stock split.
7. Which of the following investors would likely prefer a firm with a high dividend payout rate?
I. A corporate investor
II. A tax-exempt investor
III. An investor who does not need current income.
IV. An investor in a relatively high personal income tax bracket.
A. III only
B. I and II only
C. II and IV only
D. III and IV only
E. I, II, III, and IV
8. Frederic's Ltd in Vancouver has 47,500 shares of stock outstanding with a par value of $1.00 per share
and a market price of $42 a share. The firm just announced a 3-for-2 stock split. What will the market
price per share be after the split?
A. $21.00
B. $28.00
C. $42.00
D. $54.00
E. $63.00
9. Suppose SesameSweet declares a 3-for-1 stock split. If you owned 750 shares before the split, how
many do you own after the split?
A. 187
B. 250
C. 375
D. 1,500
E. 2,250
10. Jaguar, Inc. maintains a debt-equity ratio of .60 and follows a residual dividend policy. The company
has after-tax earnings of $3,100 for the year and needs $3,000 for new investments. What is the total
amount Jaguar will pay out in dividends for this year?
A. $0
B. $1,125
C. $1,225
D. $1,875
E. $1,975
Answer Key
1. B
2. B
3. E
4. C
5. D
6. E
7. B
8. B – Market price per share = $42 2/3 = $28
9. E – 750*3 = 2,250
10. C – Equity needed for new investment = (1.00/1.60) $3,000 = $1,875; Dividend = $3,100 -
$1,875 = $1,225
