This quiz works best with JavaScript enabled. Home > Finance > Corporate Finance > Dividend Policy – Quiz 2 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Dividend Policy Quiz 2 (30 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. What would happen to the after tax cost of debt if there is an increase in the corporate tax rate: A) Will increase. B) Will decrease. C) Will remain the same. D) None of above. Show Answer Correct Answer: B) Will decrease. 2. The profits of the corporation are an important source to financing the firm, that is the decisions of the dividend policy is called ..... A) Production decisions. B) Investing decisions. C) Financing decisions. D) Operating Decisions. Show Answer Correct Answer: C) Financing decisions. 3. This theory states that investors prefer dividend than capital gain because the dividend is less risky. A) Tax preference theory. B) Dividend irrelevant theory. C) Bird in hand theory. D) Signaling effectt. Show Answer Correct Answer: C) Bird in hand theory. 4. What is capital gains in shares? A) Dividend received. B) The difference between buying and selling price. C) Interest payment. D) The principal and interest payment. Show Answer Correct Answer: B) The difference between buying and selling price. 5. Hafiz owns 1, 000 shares of Gangnam stock. Each stock is stated at RM2.50 per share. Gangnam Corporated also just announced a STOCK DIVIDEND payout of 10 percent. How many shares will Heidi own? A) 2, 500 shares. B) 900 shares. C) 1, 100 shares. D) 1, 000 shares. Show Answer Correct Answer: C) 1, 100 shares. 6. Because financial risks have the effect of intensifying operational risks, companies with smaller operational risks should set lower debt ratios to avoid further intensifying operational risks. A) Untrue. B) True. Show Answer Correct Answer: A) Untrue. 7. In the process of dividend payment. Will weekends be counted as the days of the payment A) MAYBE. B) DEPENDS. C) YES. D) NO. Show Answer Correct Answer: D) NO. 8. In Q.1 of test paper what is MP of share in (ii) A) 240. B) 220. C) 200. D) None of these. Show Answer Correct Answer: A) 240. 9. The management, in order to retain control of the company in their own hands, may prefer to paying dividends rather than retain profits, because the control of the existing shareholders will get diluted if the company issues new shares. A) No. B) Yes. Show Answer Correct Answer: A) No. 10. Dividend policy determines: A) What portion of earnings will be paid out to stock holders. B) What portion will be retained in the business to finance long-term growth. C) Only (A) not (B). D) Both (A) and (B). Show Answer Correct Answer: D) Both (A) and (B). 11. In Q.2 Market price of Equity share is highest when dividend payout is A) 75 %. B) 100 %. C) 25 %. D) 50 %. Show Answer Correct Answer: C) 25 %. 12. 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) Dividend. C) Retained earnings. D) Stock repurchase. Show Answer Correct Answer: B) Dividend. 13. The firm has little or no growth opportunities, it will probably prefer to retain earnings. A) No. B) Yes. Show Answer Correct Answer: A) No. 14. Individual in a hight tax bracket typically prefer to a firm to A) Retain earnings. B) Out of syllabus. C) Issue dividends. D) Hold cash. Show Answer Correct Answer: A) Retain earnings. 15. 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. 16. 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. 17. This morning, Lambert Materials bought 10, 000 of its outstanding shares in the open market. What type of transaction was this? A) Stock repurchase. B) Stock payout. C) Stock distribution. D) Stock dividend. Show Answer Correct Answer: A) Stock repurchase. 18. ..... 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. 19. 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 ). 20. A payment to lenders for the use of their funds for a given period of time is called ..... A) Debt. B) Tax. C) Interest. D) Obligation. Show Answer Correct Answer: C) Interest. 21. 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. 22. 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. 23. 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. 24. 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. 25. The dividend payout ratio describes: A) The percentage change in dividends this year compared to last year. B) The relationship of dividends per share to market price per share. C) Dividends as a percentage of the price/earnings ratio. D) The proportion of earnings paid as dividends. Show Answer Correct Answer: D) The proportion of earnings paid as dividends. 26. 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) Extra cash dividend. B) Liquidating dividend. C) Regular cash dividend. D) Special cash dividend. Show Answer Correct Answer: C) Regular cash dividend. 27. 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. 28. 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. 29. The purpose of a stock split is to ..... A) Change in shareholder wealth. B) Selling the stock. C) Increase share price. D) Decrease share price. Show Answer Correct Answer: D) Decrease share price. 30. 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 QuizzesFinance QuizzesDividend Policy Quiz 1Dividend Policy Quiz 3Dividend Policy Quiz 4Dividend Policy Quiz 5Capital Structure QuizWorking Capital Management Quiz 🏠 Back to Homepage 📘 Download PDF Books 📕 Premium PDF Books