This quiz works best with JavaScript enabled. Home > Corporate Finance > Dividend Policy – Quiz 3 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Dividend Policy Quiz 3 (20 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. In Q.2 Market price of Equity share is highest when dividend payout is A) 25 %. B) 50 %. C) 100 %. D) 75 %. Show Answer Correct Answer: A) 25 %. 2. Which one of the following is a payment of either cash or shares of stock that is paid out ofearnings to a firm's shareholders? A) Interest. B) Stock repurchase. C) Retained earnings. D) Dividend. Show Answer Correct Answer: D) Dividend. 3. The firm has little or no growth opportunities, it will probably prefer to retain earnings. A) Yes. B) No. Show Answer Correct Answer: B) No. 4. Individual in a hight tax bracket typically prefer to a firm to A) Hold cash. B) Retain earnings. C) Out of syllabus. D) Issue dividends. Show Answer Correct Answer: B) Retain earnings. 5. A reverse split implies that the share value after the split will ..... A) Increase. B) Decrease. C) Stay the same. D) None of above. Show Answer Correct Answer: B) Decrease. 6. What are the advantages and disadvantages of a stable dividend policy? A) Advantages of a stable dividend policy include providing certainty to shareholders and attracting income-oriented investors. Disadvantages include potential limitations on growth and flexibility in financial management. B) Advantages of a stable dividend policy include potential limitations on growth and flexibility in financial management. C) Disadvantages of a stable dividend policy include attracting income-oriented investors and providing flexibility in financial management. D) Advantages of a stable dividend policy include increasing risk for shareholders and discouraging long-term investment. Show Answer Correct Answer: A) Advantages of a stable dividend policy include providing certainty to shareholders and attracting income-oriented investors. Disadvantages include potential limitations on growth and flexibility in financial management. 7. This morning, Lambert Materials bought 10, 000 of its outstanding shares in the open market. What type of transaction was this? A) Stock payout. B) Stock repurchase. C) Stock distribution. D) Stock dividend. Show Answer Correct Answer: B) Stock repurchase. 8. ..... is a good measure of the dividend policy of the company. A) Dividend Payout Ratio. B) Price Earnings Ratio. C) Earnings Per Share. D) None of the above. Show Answer Correct Answer: A) Dividend Payout Ratio. 9. Dividend policy of a firm is governed by A) Long term financing Decision. B) Profit maximization decision. C) Wealth maximization decision. D) (a) and (c ). Show Answer Correct Answer: D) (a) and (c ). 10. A payment to lenders for the use of their funds for a given period of time is called ..... A) Debt. B) Interest. C) Tax. D) Obligation. Show Answer Correct Answer: B) Interest. 11. A dividend reinvestment scheme (DRS) is..... A) An optional plan, provided by brokerage firms, allowing shareholders to automatically reinvest dividend payments in additional shares of the firm's stock. B) An optional plan, provided by large corporate firms, allowing shareholders to automatically reinvest dividend payments in additional shares of the firm's stock. C) A mandatory plan, provided by brokerage firms, where shareholders are automatically reinvesting dividend payments in additional shares of the firm's stock at a reduced price. D) A mandatory plan, provided by large corporate firms, where shareholders are automatically reinvesting dividend payments in additional shares of the firm's stock at a reduced price. Show Answer Correct Answer: B) An optional plan, provided by large corporate firms, allowing shareholders to automatically reinvest dividend payments in additional shares of the firm's stock. 12. If the original shareholders need cash and can sell their shares themselves, no special evaluation will be given because the company pays cash dividends. A) Correct. B) Incorrect. Show Answer Correct Answer: A) Correct. 13. Firm's Cost of Capital is the average cost of: A) All sources. B) All borrowings. C) Share capital-equity. D) None of above. Show Answer Correct Answer: C) Share capital-equity. 14. Discuss the impact of dividend policy on the value of the firm. A) Dividend policy only affects the firm's expenses. B) Dividend policy leads to a decrease in the firm's value. C) Dividend policy has no impact on the value of the firm. D) Dividend policy can affect the value of the firm by influencing investor perception, stock price, and cost of capital. A consistent and well-managed dividend policy can signal financial stability and attract investors, leading to an increase in the firm's value. Show Answer Correct Answer: D) Dividend policy can affect the value of the firm by influencing investor perception, stock price, and cost of capital. A consistent and well-managed dividend policy can signal financial stability and attract investors, leading to an increase in the firm's value. 15. The dividend payout ratio describes: A) The proportion of earnings paid as dividends. B) The relationship of dividends per share to market price per share. C) The percentage change in dividends this year compared to last year. D) Dividends as a percentage of the price/earnings ratio. Show Answer Correct Answer: A) The proportion of earnings paid as dividends. 16. Ah John company just announced a dividend in cash payment of RM0.02 per share. The company also plan to pay the dividend annually. Based on the above statement the RM0.02 is referring to? A) Regular cash dividend. B) Extra cash dividend. C) Special cash dividend. D) Liquidating dividend. Show Answer Correct Answer: A) Regular cash dividend. 17. The more debt a company borrows, the more likely it is that it will default on its debt payments. When debt repayments cannot be fulfilled, a company may experience financial crisis. A) True. B) Untrue. Show Answer Correct Answer: A) True. 18. When a company declares higher (lower) than normal dividends, it expects future earnings to be high (low) too. Thus, it has an impact on share price to high (low) too. This statement refers to: A) Clientele effect. B) Tax preference theory. C) Bird in hand theory. D) Signaling effect. Show Answer Correct Answer: D) Signaling effect. 19. The purpose of a stock split is to ..... A) Increase share price. B) Selling the stock. C) Change in shareholder wealth. D) Decrease share price. Show Answer Correct Answer: D) Decrease share price. 20. Explain the residual dividend policy with an example. A) The residual dividend policy is a method where a company first invests in all positive NPV projects and then pays out the remaining funds as dividends. For example, if a company has $ 100, 000 in earnings and $ 80, 000 is needed for positive NPV projects, the remaining $ 20, 000 would be paid out as dividends. B) The residual dividend policy is when a company only invests in projects that have a negative NPV. C) The residual dividend policy is when a company invests in all projects and then borrows money to pay dividends. D) The residual dividend policy is when a company pays out dividends before investing in any projects. Show Answer Correct Answer: A) The residual dividend policy is a method where a company first invests in all positive NPV projects and then pays out the remaining funds as dividends. For example, if a company has $ 100, 000 in earnings and $ 80, 000 is needed for positive NPV projects, the remaining $ 20, 000 would be paid out as dividends. ← PreviousNext →Related QuizzesDividend Policy Quiz 1Dividend Policy Quiz 2Dividend Policy Quiz 4Dividend Policy Quiz 5Dividend Policy Quiz 6Dividend Policy Quiz 7Dividend Policy Quiz 8Capital Structure QuizWorking Capital Management Quiz 🏠 Back to Homepage 📘 Download PDF Books 📕 Premium PDF Books