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Green Roof Motels has more cash on hand than its operations require. Thus, it has decided to pay out some of its earnings in the form of cash to its shareholders. What are these payments to shareholders called?


A) Dividends
B) Stock payments
C) Repurchases
D) Payments-in-kind
E) Stock splits

F) C) and D)
G) B) and E)

Correct Answer

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An investor is more likely to prefer a high dividend payout if that investor:


A) has a high marginal tax rate on dividends.
B) is a corporation.
C) pays a higher tax rate than the dividend payer.
D) does not require additional cash flows.
E) pays taxes on dividends but not on capital gains.

F) C) and E)
G) A) and B)

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A one-for-four reverse stock split will increase:


A) the par value by 25 percent.
B) the number of shares outstanding by 400 percent.
C) the market value but not affect the par value per share.
D) a $1 par value to $4.
E) a $1 par value to $5.

F) C) and D)
G) A) and E)

Correct Answer

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Which one of the following dates is used to determine the names of shareholders who will receive a dividend payment?


A) Ex-rights date
B) Ex-dividend date
C) Date of record
D) Date of payment
E) Declaration date

F) B) and C)
G) C) and E)

Correct Answer

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Which one of the following statements related to stock repurchases is correct?


A) U.S. industrial firms have increased their stock repurchases every year for each of the past 20 years.
B) The tax law change in May 2003 led to a huge increase in stock repurchases and a reduction in dividend payments.
C) A tender offer indicates that a company is willing and able to purchase as many shares as shareholders wish to sell.
D) All stock repurchases must be identified as such to the selling party.
E) Stock repurchases can be a relatively tax-efficient method of distributing cash to shareholders.

F) None of the above
G) A) and B)

Correct Answer

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Cooper Brands has 36,000 shares of stock outstanding at a market price of $61.10 a share. The company just announced a stock split of five-for-thee. What will be the market price per share after the split?


A) $36.66
B) $34.28
C) $61.10
D) $104.18
E) $101.83

F) B) and E)
G) B) and D)

Correct Answer

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The common stock of Gillen Entertainment is selling for $47 a share. The firm has a book value of $487,400 and a market value of $938,000. How many shares of stock will be outstanding if the firm does a stock split of three-for-two?


A) 26,815
B) 15,555
C) 27,183
D) 29,936
E) 32,211

F) C) and D)
G) B) and E)

Correct Answer

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The Peace River Corporation has 52,000 shares of stock outstanding at a market price of $41 a share. The company has just announced a stock split of five-for-three. How many shares of stock will be outstanding after the split?


A) 66,667 shares
B) 31,200 shares
C) 52,000 shares
D) 86,667 shares
E) 62,400 shares

F) A) and E)
G) A) and D)

Correct Answer

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Which type of dividend is considered to be a one-time event that will not be repeated?


A) Stock dividend
B) Extra cash dividend
C) Partial liquidating dividend
D) Special dividend
E) Regular cash dividend

F) A) and D)
G) A) and C)

Correct Answer

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Water Mills has a market value equal to its book value. Currently, the company has excess cash of $1,368, other assets of $35,807, and equity valued at $23,750. There are 2,500 shares of stock outstanding and net income is $470. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase?


A) $.19
B) $.33
C) $.26
D) $.08
E) $.13

F) A) and D)
G) A) and E)

Correct Answer

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The Turtle Cave currently has 15,000 shares of stock outstanding that sell for $31 per share. Assume no market imperfections or tax effects exist. What will be the new share price if the firm declares a stock dividend of 10 percent?


A) $32.17
B) $28.18
C) $29.47
D) $34.10
E) $30.30

F) D) and E)
G) All of the above

Correct Answer

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On July 9, you purchased 800 shares of Blue Water stock for $32 a share. On August 4, you sold 200 shares of this stock for $33 a share. You sold an additional 200 shares on August 14 at a price of $34.50 a share. The company declared a dividend of $.76 per share on August 3 to holders of record as of Monday, August 17. This dividend is payable on September 15. How much dividend income will you receive on September 15?


A) $304
B) $418
C) $456
D) $360
E) $608

F) C) and D)
G) B) and E)

Correct Answer

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The Mining Co. has 25,000 shares of stock outstanding. The current market value of the firm is $789,000. The company has retained earnings of $407,000, capital in excess of par value of $229,000, and a common stock account value of $25,000. The company is planning a reverse stock split of two-for-three. What will be the par value per share after the split?


A) $.50
B) $.33
C) $1.00
D) $2.50
E) $1.50

F) All of the above
G) C) and D)

Correct Answer

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Plyler Cabinets declared a dividend of $1.32 per share on May 30 to holders of record on Monday, June 12. The dividend is payable on June 16. Sara purchased 300 shares of this stock on Thursday, June 8. How much dividend income will she receive on June 12 from these shares?


A) $0
B) $396
C) $167
D) $198
E) $132

F) A) and E)
G) A) and C)

Correct Answer

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Al owns 250 shares of M&M Enterprises and earns 12.9 percent on his investment. M&M recently stated that it will pay dividends per share of $.69 this year and $.72 next year. Al does not want any dividend income this year but does want as much dividend income as possible next year. Ignoring taxes, what will Al's total homemade dividend be next year?


A) $352.50
B) $366.38
C) $330.50
D) $341.80
E) $374.75

F) B) and D)
G) B) and E)

Correct Answer

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HJ Corporation has excess cash and has opted to buy some of its outstanding shares. What is this process of buying called?


A) Stock dividend
B) Stock split
C) Stock repurchase
D) Reverse stock split
E) Stock repeal

F) A) and B)
G) A) and E)

Correct Answer

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If you ignore taxes and costs, a stock repurchase will:


A) increase the total assets of the firm.
B) increase the earnings per share.
C) increase the total equity of the firm.
D) reduce the PE ratio more than an equivalent stock dividend.
E) not affect the company's total assets.

F) C) and E)
G) B) and C)

Correct Answer

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A company wants to maintain a stock price around $16 a share. Due to a recent market downturn, the stock is currently selling for $6 a share. The company should consider a ________ stock split.


A) 3-for-1
B) 4-for-1
C) 1-for-3 reverse
D) 1-for-4 reverse
E) 1-for-5 reverse

F) B) and D)
G) D) and E)

Correct Answer

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Which one of the following is the best justification for a reverse stock split?


A) Improve the stock's respectability
B) Avoid delisting
C) Reduce transaction costs for shareholders
D) Improve the stock's liquidity
E) Increase the par value per share

F) All of the above
G) A) and E)

Correct Answer

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