Multiple-Choice Quiz

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Chapter 18: Dividend Policy

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1. Retained earnings are

an indication of a company's liquidity.

the same as cash in the bank.

not important when determining dividends.

the cumulative earnings of the company after dividends.

2. Which of the following is an argument for the relevance of dividends?

Informational content.

Reduction of uncertainty.

Some investors' preference for current income.

All of the above.

3. All of the following are true of stock splits EXCEPT:

market price per share is reduced after the split.

the number of outstanding shares is increased.

retained earnings are changed.

proportional ownership is unchanged.

4. If Ian O'Connor Enterprises, Inc., repurchased 50 percent of its outstanding common stock from the open (secondary) market, the result would be

a decline in EPS.

an increase in cash.

a decrease in total assets.

an increase in the number of stockholders.

5. On May 7, Melbourne Mining declared a $.50-per-share quarterly dividend payable June 28 to stockholders of record on Friday, June 7. What is the latest date by which you could purchase the stock and still get the recently declared dividend?

June 3

June 4

June 5

June 6

6. An offer by a firm to repurchase some of its own shares is known as

a DRIP.

a self-tender offer.

a reverse split.

7. If an individual stockholder reinvests dividends under a company's dividend reinvestment plan, the reinvested dividends are

not taxable to the shareholder.

taxable to the shareholder.

8. The dividend-payout ratio is equal to

the dividend yield plus the capital gains yield.

dividends per share divided by earnings per share.

dividends per share divided by par value per share.

dividends per share divided by current price per share.

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