1. TRUE OR FALSE A 100% stock dividend results in a doubling of the number of ou
ID: 2754707 • Letter: 1
Question
1.
TRUE OR FALSE
A 100% stock dividend results in a doubling of the number of outstanding shares, but it does not affect the company's assets, profits, or total value.
2.
Which one of these statements is correct?
A. Dividends tend to fluctuate in direct relation to changes in annual earnings.
B. Managers are less concerned with the change in the dividend than with the actual amount of
the dividend.
C. Managers tend to avoid smooth dividends as they don't signal the firm's most recent successes.
D. Managers tend to only increase dividends when they believe the increased amount can be
sustained.
3.
How are investors most apt to interpret a reduction in a firm's regular dividend payment?
A. Earnings are expected to decline.
B. New investments are expected to increase.
C. Stock repurchases are expected to increase.
D. Share price is expected to increase.
4.
Based on the dividend growth model, the price of a stock will remain constant if the dividend is
cut, provided that the:
A. required return on the stock is proportionately increased.
B. growth rate in dividends remains constant.
C. reduction is offset by an increase in the growth rate.
D. growth rate is decreased by the percent decrease in the dividend.
5.
When a firm announces a two-for-one stock split (in the absence of other new information), investors should expect that:
A. the earnings per share will decrease by 50% but the stock price will remain constant.
B. the stock price will decrease by 50% but earnings per share will remain constant.
C. both the earnings per share and the stock price will remain the same.
D. both earnings per share and the stock price will decrease by 50%.
Explanation / Answer
A 100% stock dividend results in a doubling of the number of outstanding shares, but it does not affect the company's assets, profits, or total value.
True.
Because A stock dividend reassigns the amount of shares from its retained earnings to its paid-in capital account
Hence in Stock dividends , no money goes out of the company, but its shares becomes more marketable. So but it does not affect the company's assets, profits, or total value.
2.
Which one of these statements is correct?
A. Dividends tend to fluctuate in direct relation to changes in annual earnings.
B. Managers are less concerned with the change in the dividend than with the actual amount of
the dividend.
C. Managers tend to avoid smooth dividends as they don't signal the firm's most recent successes.
D. Managers tend to only increase dividends when they believe the increased amount can be
sustained.
Statement A is True.
Because Dividends are given out of earnings only. So if earnings fluctuates the amount of dividends also
3.
How are investors most apt to interpret a reduction in a firm's regular dividend payment?
A. Earnings are expected to decline.
B. New investments are expected to increase.
C. Stock repurchases are expected to increase.
D. Share price is expected to increase.
Statement B is answer
Because retention of dividends signifies company has plan to make new investments.
4.
Based on the dividend growth model, the price of a stock will remain constant if the dividend is
cut, provided that the:
A. required return on the stock is proportionately increased.
B. growth rate in dividends remains constant.
C. reduction is offset by an increase in the growth rate.
D. growth rate is decreased by the percent decrease in the dividend.
Answer
Statement B is correct
growth rate in dividends remains constant.
5.
When a firm announces a two-for-one stock split (in the (in the absence of other new information), investors should expect that:
the earnings per share will decrease by 50% but the stock price will remain constant.
B. the stock price will decrease by 50% but earnings per share will remain constant.
C. both the earnings per share and the stock price will remain the same.
D. both earnings per share and the stock price will decrease by 50%.
Statement D is correct
Though total value of the company remains same but it’s Earning per share and stock price reduces
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