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Exam 18: Dividend Policy and Retained Earnings

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Question 41

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A major desire of stockholders regarding dividend policy is

A) frequent stock dividends.
B) dividend stability.
C) high payouts when earnings are up, and lower payouts when earnings are down.
D) the payment of dividends at frequent intervals.

E) C) and D)
F) B) and C)

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Question 42

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Some researchers feel that stockholders prefer dividends to retained earnings because dividends have information content.

A) True
B) False

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Question 43

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The major drawback for viewing dividends as a passive variable is that stockholders likely have some preference related to dividend payments.

Investors in high marginal tax brackets usually prefer companies that reinvest most of their earnings, thus creating more growth in earnings and stock prices and deferring taxes into the future.

Dividends are the active variable in the "marginal principle of retained earnings."

Mirrlees Furniture earned $750,000 last year and had a 30% payout ratio. How much did the firm add to its retained earnings?

The stockholders' equity section of the balance sheet of the XYZ Corp. is as follows: $\begin{array} { l l } \text { Common stock (\$6 par) } & \$ 24,000,000 \\\text { Retained earnings } & \$ 125,000,000 \\\text { Total } &\$ 149,000,000 \end{array}$ If the company now splits its stock 3-for-1, which of the following is correct?

In the maturity stage, a firm

Stockholders in general prefer large dividends to small dividends.

The cash savings from reduced dividend payments resulting from a stock repurchase strategy can allow the company to increase its dividends for remaining shareholders.

Stability of dividends is not important to stockholders.

Stockholders may prefer dividends to reinvestment by the firm

Which of the following is NOT true about the life-cycle growth and dividend policy?

The dividend yield is the cash dividend divided by the current market price of the stock.

In Stage I of a firm's life cycle, the firm will pay high dividends to shareholders in order to attract additional investors.

Firm X has declared a stock dividend that pays one share of stock for every five shares owned. After the stock dividend, earnings per share will

In Stage II (the growth stage) , sales and returns on assets will be growing at increasing rates. Which of the following is true?

A rapid growth firm can often expect a shift in the type of its typical stockholder as the firm moves into maturity.

In the initial stage (Stage I) , the corporation

Research shows that firms that repurchase their shares exhibit positive stock price returns.