FNAN 522 Mod 6 Homework Review – Complete Finance Course
Preparation
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? - ANS ✔✔37.5%
In which of the following situations would a shareholder prefer to receive stock dividends as
opposed to cash dividends?
a. Cash dividends and stock sales are both taxed using capital gain rates.
b. All of these answers
c. The investor wants to minimize the taxes due on investment income.
d. The investor is looking to own shares in the company for a long period of time. - ANS ✔✔d.
The investor is looking to own shares in the company for a long period of time.
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?
a. Changes in dividend policy may indicate a change in the company's investment policy.
b. There are transaction costs associated with trading stock.
c. Dividends and share repurchases are taxed at different rates.
d. All of these answers. - ANS ✔✔d. All of these answers.
Which of the following is a possible market reaction to an stock repurchase announcement?
a. The stock price may increase because the repurchase signals that the company views the
shares as currently undervalued.
b. 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.
c. All of these answers.
, d. The share price may increase because the repurchase signals that the company is shifting to a
higher degree of leverage to maximize returns to shareholders. - ANS ✔✔c. All of these
answers.
A company wants to implement a capital growth policy. In the current year it had $10 million in
net income. How much income should it distribute in dividends in order to pursue this strategy?
a. $9 million
b. $20 million
c. $10 million
d. $1 million - ANS ✔✔d. $1 million
Which of the following is a benefit shareholders can obtain by repurchasing its shares?
a. Share repurchases can boost EPS, which can in turn increase management compensation.
b. Shareholders have a higher percent ownership in the company at a higher per share price.
c. Share repurchases can deter hostile takeovers.
d. All of these answers. - ANS ✔✔b. Shareholders have a higher percent ownership in the
company at a higher per share price.
Which of the following is a method of payment a corporation can use to pay a dividend?
a. Cash.
b. Securities of other companies.
c. All of these answers.
d. Stock - ANS ✔✔c. All of these answers.
Under the Modigliani-Miller theorem in finance, the value of a company depends on:
a. the capital structure of the company.
b. how managers work together.
Preparation
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? - ANS ✔✔37.5%
In which of the following situations would a shareholder prefer to receive stock dividends as
opposed to cash dividends?
a. Cash dividends and stock sales are both taxed using capital gain rates.
b. All of these answers
c. The investor wants to minimize the taxes due on investment income.
d. The investor is looking to own shares in the company for a long period of time. - ANS ✔✔d.
The investor is looking to own shares in the company for a long period of time.
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?
a. Changes in dividend policy may indicate a change in the company's investment policy.
b. There are transaction costs associated with trading stock.
c. Dividends and share repurchases are taxed at different rates.
d. All of these answers. - ANS ✔✔d. All of these answers.
Which of the following is a possible market reaction to an stock repurchase announcement?
a. The stock price may increase because the repurchase signals that the company views the
shares as currently undervalued.
b. 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.
c. All of these answers.
, d. The share price may increase because the repurchase signals that the company is shifting to a
higher degree of leverage to maximize returns to shareholders. - ANS ✔✔c. All of these
answers.
A company wants to implement a capital growth policy. In the current year it had $10 million in
net income. How much income should it distribute in dividends in order to pursue this strategy?
a. $9 million
b. $20 million
c. $10 million
d. $1 million - ANS ✔✔d. $1 million
Which of the following is a benefit shareholders can obtain by repurchasing its shares?
a. Share repurchases can boost EPS, which can in turn increase management compensation.
b. Shareholders have a higher percent ownership in the company at a higher per share price.
c. Share repurchases can deter hostile takeovers.
d. All of these answers. - ANS ✔✔b. Shareholders have a higher percent ownership in the
company at a higher per share price.
Which of the following is a method of payment a corporation can use to pay a dividend?
a. Cash.
b. Securities of other companies.
c. All of these answers.
d. Stock - ANS ✔✔c. All of these answers.
Under the Modigliani-Miller theorem in finance, the value of a company depends on:
a. the capital structure of the company.
b. how managers work together.
