Which of the following is true concerning publicly traded companies?
a.the number of companies that pay dividends has been declining over time
b.the aggregate payout (dividend payout) of companies has increased over time
c.the aggregate payout (dividend payout) of companies has decreased over time
d.a and b
63.Two identical companies with identical share prices (and identical numbers of shares outstanding) change their quarterly dividend by the same amount. However, Company A is increasing its dividend while Company B is decreasing its dividend. Choose the correct description of what should follow given the empirical evidence.
a.Company A’s price should increase by more than the decrease in Company B’s price
b.Company A’s price should increase by less than the decrease in Company B’s price
c.Company B’s price should increase by more than the decrease in Company A’s price
d.Company B’s price should increase by less than the decrease in Company A’s price
64.The agency cost model of dividend payments assumes that
a.agency problems are distinct from the amount of cash paid out to shareholders.
b.dividend payments arise as an attempt to overcome the agency problems that result between bondholders and management.
c.dividend payments arise as an attempt to overcome the agency problems that result when there is a separation of corporate ownership and control.
d.none of the above.
65.The fictitious widget industry is composed of two firms. One firm is a quality firm and the other is a less-than-quality firm. Given the signaling model of dividends, how might the quality firm convey to the market that it is the quality firm?
a.tell the market (through analysts) that it is the quality firm
b.cut its dividend payment to signal that it has a large number of quality projects on the horizon
c.increase its dividend payment beyond what the less-than-quality firm could afford
d.there is nothing that the firm could do to address the situation
66.Bilbao Vizgaggins owns shares in a company that does not pay dividends. Unfortunately, Vizgaggins requires a $100,000 dividend this period. If Vizgaggins owns 10,000 shares in the company and they are worth $200 per share, what can he do to produce the effect of the required dividend (ignore all tax effects)?
a.sell 500 shares of his stock
b.sell 5000 shares of his stock
c.buy 500 more shares of the stock
d.there is nothing that he can do
67.The result that dividend policy is irrelevant can be critiqued if we consider
a.differential tax rates between dividends and capital gains.
b.that certain shareholders would rather receive dividends instead of capital gains.
c.that shareholders do not have the ability to produce their own dividends.
d.all of the above.
68.If we start with the frictionless markets concerning the irrelevance of dividend policy and then we introduce personal taxes that are higher for dividends than capital gains then we would expect
a.for dividends to be less popular.
b.for dividends to become even more popular.
c.for dividend policy to become even more irrelevant.
d.none of the above.
69.The empirical observation that stock prices fall on ex-dividend days by significantly less than the amount of the dividend has been often interpreted
a.as completely unexplainable by researchers.
b.as evidence that dividends are more highly valued than capital gains.
c.as evidence of a tax effect in dividend valuation.
d.none of the above.
70.You purchased a stock 6 months ago for $30 and the current price is $33. The firm is about to pay its first dividend (ever) of $3 in a few days. You will pay a 40% tax rate on dividends and a 20% tax rate on capital gains. What must the share price fall in order for you to be indifferent between selling the shares before or after the ex-dividend date?
d.none of the above
71.If you are a stock trader and your trading proceeds are not subject to taxes, what strategy below would work best if you expected that the drop in share price after the ex-dividend date is less than the amount of the dividend?
a.buy the shares immediately before the ex-dividend date and then sell them immediately after the ex-dividend date
b.sell the shares immediately before the ex-dividend date and then buy them back immediately after the ex-dividend date
c.buy the shares immediately before the ex-dividend date and then buy more of them immediately after the ex-dividend date
d.none of the above
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