Part 6

Topics: Dividend, Dividends, Capital structure Pages: 5 (970 words) Published: May 17, 2015
User
Codi A Eby
Course
BA 520: Financial Strat/Tech(68796-W15)
Test
Part 6 Quiz
Started
1/16/15 3:25 PM
Submitted
1/23/15 12:13 PM
Status
Completed
Attempt Score
69 out of 75 points  
Time Elapsed
164 hours, 48 minutes.
Instructions

Question 1
3 out of 3 points

The optimal distribution policy strikes that balance between current dividends and capital gains that maximizes the firm's stock price.

Correct Answer:
 True

Question 2
3 out of 3 points

The dividend irrelevance theory, proposed by Miller and Modigliani, says that provided a firm pays at least some dividends, how much it pays does not affect either its cost of capital or its stock price.

Correct Answer:
 False

Question 3
3 out of 3 points

MM's dividend irrelevance theory says that while dividend policy does not affect a firm's value, it can affect the cost of capital.

Correct Answer:
 False

Question 4
3 out of 3 points

If investors prefer firms that retain most of their earnings, then a firm that wants to maximize its stock price should set a low payout ratio.

Correct Answer:
 True

Question 5
3 out of 3 points

Stock dividends and stock splits should, at least conceptually, have the same effect on shareholders' wealth.

Correct Answer:
 True

Question 6
0 out of 3 points

A reverse split reduces the number of shares outstanding.

Correct Answer:
 True

Question 7
3 out of 3 points

If management wants to maximize its stock price, and if it believes that the dividend irrelevance theory is correct, then it must adhere to the residual distribution policy.

Correct Answer:
 False

Question 8
3 out of 3 points

In the real world, dividends

Correct Answer:
 
are usually more stable than earnings.

Question 9
3 out of 3 points

Which of the following should not influence a firm's dividend policy decision?

Correct Answer:
 
The fact that much of the firm's equipment has been leased rather than bought and owned.

Question 10
3 out of 3 points

Which of the following statements about dividend policies is correct?

Correct Answer:
 
The clientele effect suggests that companies should follow a stable dividend policy.

Question 11
3 out of 3 points

Which of the following statements is correct?

Correct Answer:
 
Stock repurchases can be used by a firm that wants to increase its debt ratio.

Question 12
3 out of 3 points

Which of the following statements is correct?

Correct Answer:

If a company wants to raise new equity capital rather steadily over time, a new stock dividend reinvestment plan would make sense. However, if the firm does not want or need new equity, then an open market purchase dividend reinvestment plan would probably make more sense.

Question 13
3 out of 3 points

Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?

Correct Answer:
 
Its R&D efforts pay off, and it now has more high-return investment opportunities.

Question 14
3 out of 3 points

Different borrowers have different risks of bankruptcy, and bankruptcy is costly to lenders. Therefore, lenders charge higher rates to borrowers judged to be more at risk of going bankrupt.

Correct Answer:
 True

Question 15
3 out of 3 points

A firm's business risk is largely determined by the financial characteristics of its industry, especially by the amount of debt the average firm in the industry uses.

Correct Answer:
 False

Question 16
3 out of 3 points

As the text indicates, a firm's financial risk has identifiable market risk and diversifiable risk components.

Correct Answer:
 False

Question 17
3 out of 3 points

Whenever a firm...
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