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    the repurchase of stock is considered ______ decision rather than ______ decision.

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    Multiple choice questions

    Home Student Resources Chapter 18 Multiple choice questions

    Multiple choice questions

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    Week 6

    Study Week 6 - Dividend Policy flashcards. Create flashcards for FREE and quiz yourself with an interactive flipper.

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    Week 6 - Dividend Policy

    105cards Harrison L. Finance

    Principles Of Finance

    Page 480 - 501

    The combination of positive news (dividend _________) and negative information (caution about future) often leaves investors _______ of the sustainability of dividend increases

    increases uncertain

    A dividend _________ provides positive news for investors

    increase

    The term ________ refers to a cash distribution of earnings

    dividend

    Any direct payment by the corporation to shareholders may be considered part of ___________ policy

    dividend Define dividend

    The redistribution of earnings from firm to shareholders (part of the price of share is offered as cash)

    A dividend is associated with the redistribution of earnings from ______ to ___________

    firm shareholders

    What are the 4 types of dividend?

    Regular cash dividend

    Special dividend (extra dividend)

    Liquidating dividend

    Stock dividends

    The most common type of dividend is in the form of ______; known as ________ ____ _________

    cash regular cash dividend

    What is a regular cash dividend?

    A payment of cash by the firm to its shareholders

    What is the most common dividend type?

    regular cash dividend

    How often are regular cash dividends paid out?

    Usually 2 times per year

    Paying a cash dividend reduces ... and ... (except in the case of a _________ dividend)

    corporate cash retained earnings liquidating

    What is a special dividend also known as?

    extra dividend

    What is meant by a special dividend/extra dividend?

    A dividend that is unlikely to be repeated

    What is meant by a liquidating dividend?

    A dividend that represents a return of capital (happens during liquidation)

    What type of dividend is paid out in shares of equity?

    A stock dividend

    Instead of providing cash to shareholders, extra stocks (more voting rights) can be provided via a _________ dividend

    stock

    Define stock dividend

    Instead of providing cash to shareholders, provide them with extra stocks (more voting rights)

    Why is a stock dividend not a dividend?

    Because no cash leaves the firm

    A stock dividend increases the number of ...

    shares outstanding, thereby

    T/F: when a stock dividend is issued, the value of each shares increases

    False. When a stock dividend is issued, the number of shares outstanding increases, thereby reducing the value of each share

    A stock dividend is commonly expressed as a ratio. For example, a shareholder received 1 new share for every 50 currently owned, resulting in a __% stock dividend

    2% (1/50)

    A share buy-back is also known as...

    a share repurchase

    Instead of paying dividends, how else may a firm transfer cash to stockholders?

    A share buy-back scheme

    What is meant by a share buy-back/repurchase?

    A firm distributes cash to shareholders by repurchasing shares from shareholders

    Instead of paying dividends, a firm may use cash to repurchase shares of its own equity. This is known as...

    a share repurchase/buy-back

    What are the 4 types of share buy-back/repurchase?

    Open market repurchases

    Fixed-price tender offers

    Dutch auctions

    Private negotiations

    What is meant by an open market repurchase?

    A type of share buyback whereby the firm decides to buy back shares at market prices. The firm simply purchases their own equity, just as anyone would. They do not reveal themselves as the buyer

    Which type of share buy-back?

    Open market repurchase:Companies simply purchase their own equity, and the firm does not reveal itself as the buyer

    What is meant by a (fixed-price) tender offer?

    The firm buys a fixed number of shares at a specific price - which is set higher than the current (market) share price

    In a (fixed-price) tender offer, the price is set above the current market share price. Why?

    To encourage shareholders to sell (tender) their shares

    What is meant by a Dutch Auction?

    A type of share buyback where firms provide a price range, and shareholders bid within the range. The most appealing offer is accepted as repurchase price (lowest)

    What is meant by a private negotiation?

    A type of share buyback where a firm discusses buyback of shares in a private negotiation. Usually used to avoid takeover by a large shareholder

    Why is a private negotiation often used in share buyback schemes?

    To negotiate with large shareholders in order to prevent takeover

    T/F: firms tend to have a preference of share buybacks/repurchases rather than dividends

    True, buybacks are increasingly popular over dividends

    The decision to pay a dividend rests in the hands of...

    the board of directors of the corporation

    A dividend is distributable to shareholders of record on...

    a specific date

    When a dividend has been declared, it becomes a _________ of the firm and cannot be easily rescinded by the corporation

    liability

    The amount of dividend is expressed as ...

    or % of market price (dividend yield) or percentage of earnings per share (dividend payout)

    Dividend payments are made to stockholders holding shares on a particular ________ date

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    (PDF) Multiple Choice Questions and Answers:Capital Structure & Dividend Policy

    PDF | 1. A single, overall cost of capital is often used to evaluate projects because: a. It avoids the problem of computing the required rate of return... | Find, read and cite all the research you need on ResearchGate

    HomeCorporate FinanceEconFinancial EconomicsCapital Structure

    BookPDF Available

    Multiple Choice Questions and Answers:Capital Structure & Dividend Policy

    January 2014

    DOI:10.13140/2.1.3718.4004

    Edition: 1stPublisher: A.AjanthanEditor: A.AjanthanISBN: 978-955-41040-1-3

    Authors:

    Alagathurai Ajanthan

    University of Jaffna

    Abstract

    1. A single, overall cost of capital is often used to evaluate projects because: a. It avoids the problem of computing the required rate of return for each investment proposal. b. It is the only way to measure a firm's required return. c. It acknowledges that most new investment projects have about the same degree of risk. d. It acknowledges that most new investment projects offer about the same expected return. 2. The weighted average cost of capital for a firm is the: a. Discount rate which the firm should apply to all of the projects it undertakes. b. Rate of return a firm must earn on its existing assets to maintain the current value of its stock. c. Coupon rate the firm should expect to pay on its next bond issue. d. Maximum rate which the firm should require on any projects it undertakes. e. Required rate which every project's internal rate of return must exceed. 3. Peter's Audio Shop has a cost of debt of 7%, a cost of equity of 11%, and a cost of preferred stock of 8%. The firm has 104,000 shares of common stock outstanding at a market price of $20 a share. There are 40,000 shares of preferred stock outstanding at a market price of $34 a share. The bond issue has a total face value of $500,000 and sells at 102% of face value. The tax rate is 34%. What is the weighted average cost of capital for Peter's Audio Shop? a. 6.14% b. 6.54% c. 8.60% d. 9.14% e. 9.45%

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