Unit 11: Forms of Dividend - Practice Quiz

1 What is a cash dividend?

2 Who normally approves the declaration of a cash dividend?

3 Which shareholders are entitled to receive a declared cash dividend?

4 A company pays a dividend of $2 per share. How much does an investor with 100 shares receive?

5 What are bonus shares?

6 In a 1-for-4 bonus issue, how many bonus shares does a holder of 400 shares receive?

7 Which company resource is commonly capitalized when bonus shares are issued?

8 What happens to the number of shares held by an investor after a bonus issue?

9 What is the main effect of a stock split?

10 An investor owns 50 shares before a 2-for-1 stock split. How many shares will the investor own afterward?

11 What generally happens to an investor's total holding value immediately after a stock split, assuming no market reaction?

12 Why might a company conduct a stock split?

13 What is a stock repurchase?

14 What usually happens to the number of shares outstanding after a company repurchases and retires shares?

15 Which is a common method of conducting a stock repurchase?

16 A stock repurchase can serve as an alternative to which shareholder distribution?

17 What does a stable dividend policy generally aim to provide?

18 Under a constant payout ratio policy, dividends are based on a fixed percentage of what?

19 A company earns $5 per share and has a dividend payout ratio of $40\%$. What is its dividend per share?

20 Under a residual dividend policy, when are dividends generally paid?

21 A company's shares trade at $48 immediately before becoming ex-dividend. If it declares a cash dividend of $2 per share and markets are otherwise unchanged, what is the theoretical ex-dividend price?

22 A share is priced at $30 and pays an annual cash dividend of $1.50. What is its dividend yield?

23 A company with 500,000 outstanding shares pays a cash dividend of $1.20 per share. What is the immediate total reduction in cash and retained earnings?

24 An investor buys a share for $40, receives a $2 cash dividend, and sells it for $43. Ignoring taxes and transaction costs, what is the holding-period return?

25 A company with 800,000 outstanding shares issues a bonus issue. How many shares will be outstanding afterward?

26 A share trades at $50 before a $25\%$ bonus issue. Assuming no change in total equity value, what is its theoretical post-issue price?

27 A company's earnings remain unchanged after a bonus issue. If EPS was $6 before the issue, what is the adjusted EPS?

28 Which accounting effect most commonly results from issuing bonus shares?

29 A shareholder owns 200 shares priced at $90 each before a 3-for-1 stock split. What will the shareholder theoretically own immediately after the split?

30 A company conducts a 1-for-5 reverse stock split. An investor holding 1,000 shares priced at $4 each will theoretically hold:

31 Which feature generally distinguishes a stock split from a bonus share issue?

32 A company reports EPS of $8 before a 4-for-1 stock split. If earnings are unchanged, what EPS should be presented on a comparable post-split basis?

33 A company earns $5 million and has 1 million shares outstanding. It repurchases 100,000 shares, and earnings remain unchanged. What is the new EPS?

34 A company uses $4 million of cash to repurchase shares at $50 each. How many shares are removed from public ownership?

35 Which method allows a company to offer to buy a specified number of shares directly from shareholders at a stated price during a limited period?

36 All else equal, what is the most likely immediate balance-sheet effect when a company repurchases shares using cash?

37 A company maintains a stable dividend per share despite temporary fluctuations in earnings. Which practical dividend policy is it following?

38 A company has $10 million in earnings, a $12 million capital budget, and a target debt ratio of . Under the residual dividend model, how much can it distribute as dividends?

39 A company follows a constant dividend payout policy. If EPS declines from $5 to $3, how will dividend per share change?

40 Management avoids increasing the regular dividend after a one-time profit because it doubts the higher earnings can continue. Which practical consideration best explains this decision?

41 A company declares a $12 million cash dividend on March 1 and pays it on April 15. Ignoring taxes, which sequence correctly describes the aggregate accounting effects?

42 A firm has net income of $95 million, a $120 million capital budget, and a target debt-to-equity ratio of $0.50. Under a strict residual dividend approach, what cash dividend and payout ratio should it select?

43 A share trades cum-dividend at $60 and will pay a $3 dividend. Investors face a 30% dividend tax and a 10% capital-gains tax, with identical tax bases and no transaction costs. What ex-dividend price makes an investor indifferent between selling immediately and selling after receiving the dividend?

44 A company has cumulative preference shares requiring $1.2 million of annual dividends. Two full years are in arrears before the current year. If the board declares a total cash dividend of $6 million during the current year, how much can be distributed to ordinary shareholders?

45 A company has 8 million shares outstanding, earnings of $40 million, and a market price of $45 per share. It makes a 25% bonus issue. Assuming no signaling, tax, or liquidity effects, what are the theoretical post-issue price and EPS?

46 A firm with 4 million shares of $2 par value declares a one-for-four bonus issue, capitalized at par from retained earnings. Which immediate accounting effect is correct?

47 A company has 6 million shares, net income of $18 million, and an annual ordinary dividend pool of $9 million. It then makes a two-for-five bonus issue while holding net income and the total dividend pool constant. What are the post-issue EPS and DPS?

48 An investor owns 73 shares before a one-for-eight bonus issue. Fractional shares are not issued; instead, fractional entitlements are pooled and sold at the theoretical ex-bonus price. What should the investor receive?

49 A company with 7.5 million shares trading at $12 executes a one-for-six reverse split. An investor owns 155 old shares, and fractions are paid in cash at the theoretical post-split price. What are the company's new share count and the investor's cash-in-lieu amount?

50 A company completes a five-for-one stock split by proportionally reducing par value. With no market reaction, which combination of effects is theoretically correct?

51 An investor owns 10 call-option contracts, each covering 100 shares at a $60 strike. After a three-for-two stock split, an adjustment preserves both the investor's aggregate exercise cost and proportional exposure. Which adjusted terms satisfy these conditions?

52 A 100% bonus issue and a two-for-one stock split can produce identical changes in shares, EPS, and theoretical price. Under conventional accounting treatment, what can distinguish them?

53 A firm earns $50 million and has 10 million shares trading at $40. It borrows $80 million at a 6% after-tax cost and immediately repurchases 2 million shares at market price. Ignoring secondary valuation effects, what is the new EPS?

54 A debt-free company has equity worth $500 million and 10 million shares. It spends $110 million to repurchase 2 million shares at $55 each, even though the pre-announcement intrinsic value is $50. Ignoring signaling and taxes, what intrinsic value remains per outstanding share?

55 A firm wants to repurchase a large block promptly, specifies an acceptable price range, and wants shareholders' tenders to determine the lowest price at which the desired quantity can be acquired. Which mechanism best fits?

56 Under the treasury-stock cost method, a company repurchases 1 million of its own shares for $30 million. Before any reissue or retirement, which immediate effect is correct?

57 Under a Lintner-style adjustment model, a firm targets a 45% payout ratio and adjusts 30% of the gap between last year's dividend and the target dividend. If current EPS is $8.00 and last year's DPS was $2.40, what is this year's DPS?

58 A company has a $150 million capital budget, targets 40% debt financing, and expects $72 million of net income. Under a strict residual policy, all projects must proceed and new equity may be issued. What financing and dividend outcome follows?

59 A highly cyclical firm compares a constant payout-ratio policy with a stable dividend-per-share policy. Assuming no discretionary reserves and large earnings fluctuations, which statement is most accurate?

60 A mature company generates predictable excess cash each year, has no positive-NPV projects, and faces severe managerial empire-building incentives. The board wants the strongest recurring distribution constraint and accepts reduced financial flexibility. Which policy best addresses the stated objective?