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Multiple Choice Quiz
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1
Which of the following dividends is never in the form of cash?
A)Regular dividend
B)Special dividend
C)Stock dividend
D)Liquidation dividend
2
Dividends are decided by:
A)The managers of a firm
B)The employees of a firm
C)The board of directors
D)The government
3
Which of these events occurs last in time (when arranged in chronological order)?
A)Payment date
B)Ex-dividend date
C)Record date
D)Dividend declaration date
4
A stock dividend is essentially the same as:
A)A stock split
B)A stock repurchase
C)A cash dividend
D)None of these options
5
How can a firm repurchase its stock?
A)Buy them in the open market
B)Use a tender offer
C)Employ a Dutch auction
D)All of these options
6
Which of the following is true?
A)Managers focus more on dividend changes than on absolute levels
B)Dividend changes follow shifts in long-run sustainable earnings
C)Managers are reluctant to make dividend changes that might have to be reversed
D)All of these options
7
Generally, a reduction in dividend is interpreted by investors as:
A)Bad news and the stock price drops
B)Good news and the stock price increases
C)A non-event and does not affect the stock prices
D)A sign of new growth
8
One key assumption of the Miller and Modigliani dividend irrelevance argument is that:
A)Future stock prices are certain
B)There are no capital gains taxes
C)New shares are sold at a fair price
D)All investments are risk-free
9
The indifference proposition regarding dividend policy:
A)States that investors will pay higher prices for shares of firms with high dividend payouts
B)States that investors will not pay higher prices for shares of firms with high dividend payouts
C)States that firms should worry about their dividends
D)States that dividends should not fluctuate as a by-product of investing and financing decisions
10
One possible reason that shareholders often insist on higher dividends is:
A)They agree with Miller and Modigliani
B)They do not trust managers to spend retained earnings wisely
C)The stock market is efficient
D)Tax consideration
11
If both dividends and capital gains are taxed at the same ordinary income tax rate, the tax effect is still different because:
A)Capital gains are actually taxed, while dividends are taxed on paper only
B)Dividends are taxed when distributed while capital gains are deferred until the stock is sold
C)Both dividends and capital gains are taxed every year
D)All of these options
12
Which of the following investors have the strongest tax reason to prefer dividends over capital gains?
A)Pension funds
B)Financial institutions
C)Individuals
D)Corporations
13
Find the share price of a company with a dividend stream of $5, cost of capital 10%, and growth rate 8%:
A)$275
B)$300
C)$250
D)$200
14
According to behavioral finance, investors prefer dividends because:
A)Of the discipline that comes from spending only the dividends
B)Of the tax consideration
C)The stock market is efficient
D)All of these options
15
The theory developed by Modigliani and Miller assumes which of the following?
A)No taxes
B)No transaction costs
C)No other market imperfections
D)All of these options





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