FIN 320 CH 7 Quiz
| 1. | True or False: A firm can either pay its earnings out to its investors or it can keep them and reinvest them. | True | |
| 2. | Which of the following is NOT a method by which a company can increase its dividend payments? A. It can increase its earnings. B. It can issue more shares. C. It can increase its dividend payout rate. D. It can decrease the number of shares outstanding. |
B | |
| 3. | Which of the following is NOT a way that a firm can increase its dividend? A. by increasing its earnings (net income) B. by increasing its dividend payout rate C. by decreasing its shares outstanding D. by increasing its retention rate |
D | |
| 4. | Which of the following situations is a potential source of cash flows for a shareholder of a certain stock? I. The investor may be able to sell the shares at a future date. II. The firm in which the shares are held might pay out cash to shareholders in the form of dividends. III. The firm in which the shares are held might increase the value of its shares by reducing the total number of shares outstanding. A. I only B. I and II C. II only D. II and III |
B | |
| 5. | Which of the following statements is FALSE? A. According to the constant dividend growth model, the value of the firm depends on the current dividend level, divided by the equity cost of capital plus the grow rate. B. Estimating dividends, especially for the distant future, is difficult. C. Successful young firms often have high initial earnings growth rates. D. A firm can only pay out its earnings to investors or reinvest their earnings. |
A | |
| 6. | Which of the following statements is FALSE? A. We cannot use the general dividend-discount model to value the stock of a firm with rapid or changing growth. B. The dividend-discount model values the stock based on a forecast of the future dividends paid to shareholders. C. As firms mature, their growth slows to rates more typical of established companies. D. The simplest forecast for the firm’s future dividends states that they will grow at a constant rate, i.e., forever. |
A |
| 7. | Which of the following statements is FALSE regarding profitable and unprofitable growth? A. If a firm wants to increase its share price, it must cut its dividend and invest more. B. A firm can increase its growth rate by retaining more of its earnings. C. If the firm retains more earnings, it will be able to pay out less of those earnings, which means that the firm will have to reduce its dividend. D. Cutting the firm’s dividend to increase investment will raise the stock price if, and only if, the new investments have a positive net present value (NPV). |
A | |
| 8. | You own 40% of the stock of a company that has ten directors on its board. How much representation can you ensure if the company has straight voting? A. With non-cumulative voting you are able to get proportional representation by putting all of your votes toward 4 directors, allowing you to elect representatives to 4 seats (40% of ten seats) on the board. B. With non-cumulative voting you vote on each director individually, without a majority of the shares you cannot ensure that your representative will win any of the elections (you could lose 60% to 40% in each of the ten individual elections). |
B | |
| 9. | You own 40% of the stock of a company that has ten directors on its board. How much representation can you get on the board if the company has cumulative voting? A. With cumulative voting you are able to get proportional representation by putting all of your votes toward 4 directors, allowing you to elect representatives to 4 seats (40% of ten seats) on the board. B. With cumulative voting you vote on each director individually, and without a majority of the shares you cannot ensure that your representative will win any of the elections (you could lose 60% to 40% in each of the ten individual elections). |
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