FNAN 522 Module 6 Review – Complete Finance Study Guide &
Practice Questions (2026)
A company made $10 million in revenue, recorded $2 million in net income, and paid $750,000
in dividends last year. What was the company's pay out ratio last year? - correct answer
✔✔total div/net income
net come is as it says 2 mil
750,000/2000000= 37.5%
In which of the following situations would a shareholder prefer to receive stock dividends as
opposed to cash dividends? - correct answer ✔✔d. The investor is looking to own shares in the
company for a long period of time. Correct
The Modigliani-Miller theory suggests that it doesn't matter to a shareholder whether a
company issues dividends. Why might that theory not be applicable to the US stock market as it
currently exists? - correct answer ✔✔a. Changes in dividend policy may indicate a change in the
company's investment policy.
b. All of these answers. Correct
c. There are transaction costs associated with trading stock.
d. Dividends and share repurchases are taxed at different rates.
Correct: B
Which of the following is a possible market reaction to an stock repurchase announcement? -
correct answer ✔✔a. The stock price may fall because the repurchase signals that the
company's future earnings may not be as high as the market currently expects.
b. All of these answers. Correct
Practice Questions (2026)
A company made $10 million in revenue, recorded $2 million in net income, and paid $750,000
in dividends last year. What was the company's pay out ratio last year? - correct answer
✔✔total div/net income
net come is as it says 2 mil
750,000/2000000= 37.5%
In which of the following situations would a shareholder prefer to receive stock dividends as
opposed to cash dividends? - correct answer ✔✔d. The investor is looking to own shares in the
company for a long period of time. Correct
The Modigliani-Miller theory suggests that it doesn't matter to a shareholder whether a
company issues dividends. Why might that theory not be applicable to the US stock market as it
currently exists? - correct answer ✔✔a. Changes in dividend policy may indicate a change in the
company's investment policy.
b. All of these answers. Correct
c. There are transaction costs associated with trading stock.
d. Dividends and share repurchases are taxed at different rates.
Correct: B
Which of the following is a possible market reaction to an stock repurchase announcement? -
correct answer ✔✔a. The stock price may fall because the repurchase signals that the
company's future earnings may not be as high as the market currently expects.
b. All of these answers. Correct
