BFIN Test 3 - Questions with Correct Verified
Answers
Which of these are likely results of a firm's decision to pay out a high percentage of its
income in current dividends? Select all that apply.
A lower rate of dividend growth
A lower amount of share repurchases
Which one of these correctly defines the dividend irrelevance theorem?
In M&M's perfect world, it doesn't matter if a firm pays out funds through dividends or capital
gains.
Which of these are assumptions on which the dividend irrelevance theory is based? Select
all that apply.
No taxes on capital gains
No taxes on dividends
Completely rational investors
Which of these help explain why a dividend payment is irrelevant in M&M's perfect
world? Select all that apply.
A dividend payment reduces the stock price by the amount of the dividend.
Shareholder wealth is unchanged by a dividend payment.
A shareholder can sell shares to receive the amount of cash that might otherwise be received
from a dividend payment.
Which of these affects a firm's payout policy? Select all that apply.
, A firm's prospective projects
Differing tax treatment of interest, dividends, and capital gains
What do shareholders most desire when a firm retains earnings rather than paying
dividends?
A higher return than the shareholder can earn elsewhere given the same level of risk
The dividend irrelevance theory states that dividend payments are irrelevant to which one
of these?
Capital gains
Which one of these conditions exists in M&M's perfect world on which the dividend
irrelevance theorem is based?
Perfectly efficient markets
How can dividends be irrelevant as suggested by the dividend irrelevance theorem to a
shareholder who desires current income?
The shareholder can sell shares to provide the current income.
True or false: Varying personal tax rates throughout a shareholder's investment horizon
has an effect on a firm's payout policies.
True
True or false: A firm should only retain earnings to the extent that it can earn a return as
high or higher than the investor can earn by investing those funds with another firm with a
similar risk profile.
Answers
Which of these are likely results of a firm's decision to pay out a high percentage of its
income in current dividends? Select all that apply.
A lower rate of dividend growth
A lower amount of share repurchases
Which one of these correctly defines the dividend irrelevance theorem?
In M&M's perfect world, it doesn't matter if a firm pays out funds through dividends or capital
gains.
Which of these are assumptions on which the dividend irrelevance theory is based? Select
all that apply.
No taxes on capital gains
No taxes on dividends
Completely rational investors
Which of these help explain why a dividend payment is irrelevant in M&M's perfect
world? Select all that apply.
A dividend payment reduces the stock price by the amount of the dividend.
Shareholder wealth is unchanged by a dividend payment.
A shareholder can sell shares to receive the amount of cash that might otherwise be received
from a dividend payment.
Which of these affects a firm's payout policy? Select all that apply.
, A firm's prospective projects
Differing tax treatment of interest, dividends, and capital gains
What do shareholders most desire when a firm retains earnings rather than paying
dividends?
A higher return than the shareholder can earn elsewhere given the same level of risk
The dividend irrelevance theory states that dividend payments are irrelevant to which one
of these?
Capital gains
Which one of these conditions exists in M&M's perfect world on which the dividend
irrelevance theorem is based?
Perfectly efficient markets
How can dividends be irrelevant as suggested by the dividend irrelevance theorem to a
shareholder who desires current income?
The shareholder can sell shares to provide the current income.
True or false: Varying personal tax rates throughout a shareholder's investment horizon
has an effect on a firm's payout policies.
True
True or false: A firm should only retain earnings to the extent that it can earn a return as
high or higher than the investor can earn by investing those funds with another firm with a
similar risk profile.
