Dividend Policy and Share Repurchases Quiz

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1. 1

   The diagram shows a stock price dropping by approximately the amount of its cash dividend at the highlighted point. Which event does the highlighted point represent?

   

   A The dividend declaration date B The ex-dividend date C The dividend payment date
2. 2

   A company expects net income of $70 million and has an $80 million capital budget. Under a residual dividend policy with a target equity weight of 60%, how much can it distribute as dividends?

   A $22 million B $42 million C $48 million
3. 3

   Using the figures in the financial panel, what is the company's dividend payout ratio?

   

   A 20% B 25% C 30%
4. 4

   The diagram shows a company with net income of $20 million repurchasing 1 million of its 10 million outstanding shares. If net income is unchanged, what is EPS after the repurchase?

   

   A $2.00 B Approximately $2.22 C Approximately $1.80
5. 5

   Under the Modigliani-Miller dividend irrelevance proposition, why does payout policy not affect firm value?

   A In perfect capital markets with fixed investment policy, investors can create homemade dividends B Dividends always reduce the firm's weighted average cost of capital C Share repurchases always produce the same tax liability as dividends
6. 6

   How does the market commonly interpret an unexpected dividend cut by a mature company with a long history of stable dividends?

   A As proof that the company has eliminated business risk B As evidence that every available project has a positive NPV C As a possible signal that management expects weaker future cash flows
7. 7

   The visual compares a shareholder's position immediately before and after a 10% stock dividend. Assuming no taxes or market frictions, what happens to the shareholder's total wealth at issuance?

   

   A It rises by exactly 10% B It remains approximately unchanged C It falls by exactly 10%
8. 8

   Which sequence correctly orders the major dates associated with a regular cash dividend?

   A Declaration date, ex-dividend date, record date, payment date B Record date, declaration date, payment date, ex-dividend date C Ex-dividend date, payment date, declaration date, record date
9. 9

   The stock dashboard shows a share price of $40 and annual cash dividends of $1.60 per share. What is the dividend yield?

   

   A 2.5% B 3.2% C 4.0%
10. 10

    A company retains 60% of its earnings and earns a 15% return on equity. Assuming stable leverage and no new equity issuance, what is its sustainable growth rate?

    

    A 6% B 9% C 15%
11. 11

    Which share repurchase method generally gives management the greatest flexibility over the timing and quantity of shares purchased?

    A An open-market repurchase program B A fixed-price tender offer C A Dutch auction tender offer
12. 12

    What does the dividend clientele effect suggest?

    A All investors prefer companies with the highest possible dividends B A company can change its dividend without attracting or losing any investors C Investors tend to choose firms whose payout policies match their income and tax preferences
13. 13

    A profitable company has little available cash and would become unable to meet near-term obligations after paying a proposed dividend. Which factor most directly restricts the payment?

    A The dividend clientele effect B Solvency and legal capital restrictions C The mechanics of a stock split
14. 14

    The payout diagram shows net income of $100 million, cash dividends of $30 million, and share repurchases of $20 million. What is the total payout ratio?

    

    A 50% B 30% C 20%
15. 15

    Ignoring transaction costs, when is a debt-financed share repurchase most likely to increase EPS immediately?

    A When the after-tax interest rate exceeds the stock's earnings yield B Whenever the repurchase increases the company's total interest expense C When the stock's earnings yield exceeds the after-tax interest rate on the debt