Chapter 14—Payout Policy

MULTIPLE CHOICE

1. In order to receive a dividend payment, an investor must own the stock

a. on the announcement date
b. on the date of record
c. on the ex-dividend date
d. on the payment date
ANS: B PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

2. Place the following dates related to dividend payments in proper order:

a. record date, announcement date, payment date, ex-dividend
date
b. announcement date, ex-dividend date, record date, payment
date
c. announcement date, record date, ex-dividend date, payment
date
d. record date, announcement date, ex-dividend date, payment
date
ANS: B PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

3. A company that seeks to pay a fixed dollar amount in dividends each period
is following a
a. constant nominal payment policy
b. constant payout ratio policy
c. low-regular-and extra policy
d. earnings management policy
ANS: A PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

4. A company that seeks to pay a fixed dollar amount in dividends each period
a. will likely experience a decrease in its payout ratio over time.
b. will likely experience an increase in its payout ratio over time.
c. will likely experience stable additions to retained earnings
over time.
d. will likely violate capital impairment restrictions frequently.
ANS: A PTS: 1 DIF: M
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

5. Stock prices usually drop by an amount nearly equal to the amount of the
dividend on
a. the announcement date
b. the record date
c. the ex-dividend date
d. the payment date
ANS: C PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

6. If a company strictly adheres to a constant payout ratio policy, its dividend

amount will
a. remain constant period by period
b. vary as earnings vary
c. steadily increase over time
d. move up in a “stair step” pattern over time.
ANS: B PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

7. Which of the following situations would increase the likelihood a firm pays
dividends?
a. rapid growth
b. high capital investment requirements
c. operating in a regulated industry
d. high earnings variability
 a. rapid growth
b. high capital investment requirements
c. operating in a regulated industry
d. high earnings variability
ANS: C PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

8. Which of the following is true?

a. U.S. corporations’ propensity to pay cash dividends has
increased over the past thirty years.
b. When repurchases are considered, the payout ratio has
declined over the past thirty years.
c. When repurchases are considered, the payout ratio has
increased over the past thirty years.
d. Most of the firms paying cash dividends are technology
related firms that grew rapidly in the ‘90s.
ANS: C PTS: 1 DIF: E
REF: 14.2 Factors Affecting Dividend and Share Repurchase Decisions
NAT: Reflective thinking LOC: understand stocks and bonds

9. The signaling model of dividends predicts

a. managers of firms with high growth opportunities “signal”
these good investments with low dividends
b. managers expecting higher future earnings “signal” with
higher dividends
c. stock prices will fall at dividend increases.
d. lower quality firms will have larger dividend payouts due to
poorer future prospects.
ANS: B PTS: 1 DIF: M
REF: 14.2 Factors Affecting Dividend and Share Repurchase Decisions
NAT: Reflective thinking LOC: understand stocks and bonds

10. The agency cost model of dividends suggests

a. dividends should be smaller for slowly growing firms with
large free cash flow.
b. dividend payments reduce managers’ opportunity to spend
free cash flow.
c. dividends are a “cost” of the corporate form of organization.
d. managers seeking to increase share value should never pay
dividends.
ANS: B PTS: 1 DIF: M
REF: 14.2 Factors Affecting Dividend and Share Repurchase Decisions
NAT: Reflective thinking LOC: understand stocks and bonds

11. Which of the following would imply a higher dividend payout?

a. increased tax rate on dividend income
b. high degree of capital intensity in the production process
c. decreased asset growth rate
d. increased importance of institutional ownership of shares
ANS: C PTS: 1 DIF: M
REF: 14.3 Dividends in Perfect and Imperfect Worlds | 14.4 Real-World Influences on
Dividend Policy NAT: Reflective thinking LOC: understand stocks and bonds

12. In perfect capital markets,

a. dividends are irrelevant because investors can costlessly create
any payout pattern desired.
b. dividends are irrelevant because firms have more investment
opportunities for free cash flow.
c. dividends are irrelevant because investors prefer certainty.
d. none of the above are true.
ANS: A PTS: 1 DIF: E
REF: 14.3 Dividends in Perfect and Imperfect Worlds NAT: Reflective thinking
LOC: understand stocks and bonds

13. Dividends are irrelevant in perfect capital markets because

a. no tax consequences exist for dividend or capital gains
income.
b. no transactions cost consequences exist for trading (buying or
selling) shares.
c. retaining earnings or paying dividends have no effect on the
firm’s investment decisions (accepting positive-NPV projects).
d. all of the above.
 a. no tax consequences exist for dividend or capital gains
income.
b. no transactions cost consequences exist for trading (buying or
selling) shares.
c. retaining earnings or paying dividends have no effect on the
firm’s investment decisions (accepting positive-NPV projects).
d. all of the above.
ANS: D PTS: 1 DIF: M
REF: 14.3 Dividends in Perfect and Imperfect Worlds NAT: Reflective thinking
LOC: understand stocks and bonds

14. If managers make dividend decisions only after taking all positive-NPV
projects, they are following
a. a constant payout ratio policy
b. a low-regular-and-extra policy
c. a constant nominal payment policy
d. a residual payment policy
ANS: D PTS: 1 DIF: E
REF: 14.4 Real-World Influences on Dividend Policy NAT: Reflective thinking
LOC: understand stocks and bonds

15. Empirical evidence suggests managers

a. closely follow a residual model of dividend payments.
b. keep nominal payments steady for long periods of time.
c. keep payout ratios constant for long periods of time.
d. prefer to increase dividends a small amount every period.
ANS: B PTS: 1 DIF: E
REF: 14.4 Real-World Influences on Dividend Policy NAT: Reflective thinking
LOC: understand stocks and bonds

16. Choc-lattes Corp. earned $5.00 per share in 2006, and paid a dividend of
$2.00 per share. If it earns $5.50 in 2007 and follows a constant nominal payout policy, its
dividend will be
a. $3.30
b. $3.00
c. $2.20
d. $2.00
ANS: D PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Analytic skills
LOC: understand stocks and bonds

17. Choc-lattes Corp. earned $5.00 per share in 2006, and paid a dividend of
$2.00 per share. If it earns $5.50 in 2007 and follows a constant payout ratio policy, its
dividend will be
a. $3.30
b. $3.00
c. $2.20
d. $2.00
ANS: C PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Analytic skills
LOC: understand stocks and bonds

18. Choc-lattes Corp. earned $5.00 per share in 2006, and paid a dividend of
$2.00 per share. If it earns $5.50 in 2007 and maintains its $2.00 dividend, its payout ratio
will be
a. 60%
b. 40%
c. 64%
d. 36%
ANS: D PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Analytic skills
LOC: understand stocks and bonds

19. Choc-lattes Corp. earned $5.00 per share in 2006, and paid a dividend of
$2.00 per share. If it earns $5.50 in 2007 and managers seek to increase the dividend to
$2.75, its payout ratio will be
a. 55%
b. 50%
c. 45%
d. 40%
ANS: B PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Analytic skills
LOC: understand stocks and bonds
 20. Amazing Growth Company shares currently trade at $108 per share. There
are 24 million shares outstanding. If the shares are split 3-for-1, how many shares will be
outstanding, and what value per share will they have (ignoring any other market changes)?
a. 8 million shares; $324 per share
b. 8 million shares; $36 per share
c. 48 million shares; $54 per share
d. 72 million shares; $36 per share
ANS: D PTS: 1 DIF: M
REF: 14.1 Payout Policy Fundamentals NAT: Analytic skills
LOC: understand stocks and bonds

NARRBEGIN: Extruded Elements

Extruded Elements
Extruded Elements had Net Income of $25,000,000 last year, and $26,250,000 this year (in
line with its long-term earnings growth rate). There are 4,000,000 shares outstanding, and
the firm follows a policy of paying 30% of its earnings out as dividends
NARREND

21. What is Extruded Elements’ expected dividend next year?

a. $2.07 per share
b. $1.97 per share
c. $4.59 per share
d. $4.82 per share
ANS: A PTS: 1 DIF: M
REF: 14.1 Payout Policy Fundamentals NAT: Analytic skills
LOC: understand stocks and bonds

22. The required rate of return on Extruded’s shares is 13%. What is the share
price today based on the Gordon growth model?
a. $16.00
b. $23.44
c. $24.63
d. $25.88
ANS: D PTS: 1 DIF: M
REF: 14.1 Payout Policy Fundamentals NAT: Analytic skills
LOC: understand stocks and bonds

23. If Extruded Elements increases its payout ratio to 40% of earnings next year,
but its expected growth rate remains constant, what is its expected dividend?
a. $4.13 per share
b. $2.63 per share
c. $3.94 per share
d. $2.76 per share
ANS: D PTS: 1 DIF: M
REF: 14.1 Payout Policy Fundamentals NAT: Analytic skills
LOC: understand stocks and bonds

NARRBEGIN: SOOIE
Southern Overnight Overland Interstate Express (SOOIE)
Suppose Joe Palooka bought 1000 shares of Southern Overnight Overland Interstate Express
(SOOIE) one year ago for $45 per share. Mr. Palooka received a $2 per share dividend, and
SOOIE shares have increased to $49.50. Joe needs to adjust his portfolio, so he sells his
SOOIE shares.
NARREND

24. Refer to SOOIE. What is his after tax return if he faces a 15% tax rate on
dividends and capital gains?
a. 11.16%
b. 14.44%
c. 12.28%
d. 13.13%
ANS: C PTS: 1 DIF: M
REF: 14.4 Real-World Influences on Dividend Policy NAT: Analytic skills
LOC: acquire an understanding of risk and return

25. Refer to SOOIE. What is his after tax return if he faces a 33% tax rate on
dividend income and a 5% tax rate on capital gains?
a. 12.48%
b. 11.35%
c. 14.44%
d. 13.13%
 a. 12.48%
b. 11.35%
c. 14.44%
d. 13.13%
ANS: A PTS: 1 DIF: M
REF: 14.4 Real-World Influences on Dividend Policy NAT: Analytic skills
LOC: acquire an understanding of risk and return

26. The date on which all the stockholders are determined that are eligible to
receive a dividend is called the . . .
a. announcement date
b. date of record
c. payment date
d. none of the above
ANS: B PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

27. A dividend policy where the company pays out a fixed percentage of their
earnings is called a
a. constant nominal payout policy
b. target dividend payout ratio policy
c. constant payout ratio policy
d. low-regular and extra policy
ANS: C PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

28. The situation where a company replaces a certain number of shares with just
one share is called a
a. stock dividend
b. stock split
c. reverse stock split
d. stock repurchase
ANS: C PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

29. Which of the following is not considered a factor in determining a company’s

dividend payout ratio?
a. industry growth rate
b. capital investment needs
c. profitability
d. all of the above
ANS: D PTS: 1 DIF: E
REF: 14.2 Factors Affecting Dividend and Share Repurchase Decisions
NAT: Reflective thinking LOC: understand stocks and bonds

30. The dividend policy model that assumes that managers use dividends to
covey positive information to shareholders is called the . . .
a. agency cost model
b. contracting cost model
c. signaling model
d. none of the above
ANS: C PTS: 1 DIF: E
REF: 14.2 Factors Affecting Dividend and Share Repurchase Decisions
NAT: Reflective thinking LOC: understand stocks and bonds

NARRBEGIN: Bavarian Brewhouse Div.

Bavarian Brewhouse Dividend
Bavarian Brewhouse had earnings per share of $2.50 in 2004 and paid out a dividend per
share of $1.45 that same year. Earnings per share are expected to be $3.25 in 2005.
NARREND

31. What was Bavarian Brewhouse’s dividend payout ratio in 2004?

a. .58
b. .62
c. .35
d. .42
ANS: A
1.45/2.50 = .58
PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals
NAT: Analytic skills LOC: understand stocks and bonds

32. If Bavarian Brewhouse follows a constant nominal dividend policy what will
be the dividend per share in 2005?
a. $1.45
b. $2.59
c. $2.12
d. $3.25
ANS: A PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Analytic skills
LOC: understand stocks and bonds

33. If Bavarian Brewhouse follows a constant payout ratio dividend policy, what
will be the dividend per share in 2005?
a. $1.45
b. $1.89
c. $2.12
d. $3.25
ANS: B
d = 1.45/2.50 = .58
DPS = 3.25(.58) = $1.89

PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

34. You own stock in a company that just announced a 3-1 stock split. If shares
currently trade at $15 a share, what should the stock price be after the stock split?
a. $15
b. $5
c. $45
d. $30
ANS: B
15/3 = 5

PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

35. You own stock in a company that just announced a 1-3 reverse stock split. If
shares currently trade at $15 a share, what should the stock price be after the reverse stock
split?
a. $15
b. $5
c. $45
d. $30
ANS: C
15(3) = 45

PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

36. Bavarian Brewhouse had aftertax earnings of $1,500,000 in 2004. The

company needs $2,500,000 for new investments and plans to finance 60% of those
investments with debt. If Bavarian Brew follows a residual dividend policy, what total
dividend will be paid?
a. $1,500,000
b. $500,000
c. $2,500,000
d. $0
ANS: B
amount of debt to be raised: 2,500,000(.6) = 1,500,000
equity needed: 1,000,000
amount available for dividends = 1,500,000 - 1,000,000 = 500,000

PTS: 1 DIF: H REF: 14.4 Real-World Influences on Dividend

Policy
NAT: Analytic skills LOC: understand stocks and bonds

37. Smith Enterprises reports earnings per share for 2004 of $3.75 and dividends
per share for the same year of $1.65. What is Smith’s dividend payout ratio?
 a. 44%
b. 56%
c. 36%
d. 64%
ANS: A
1.65/3.75 = .44

PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

38. Smith Enterprises reports earnings per share for 2004 of $3.75 and dividends
per share for the same year of $1.65. What percentage of earnings will be kept in the
company as retained earnings?
a. 44%
b. 56%
c. 32%
d. 68%
ANS: B
1.65/3.75 = .44
retention = 1-.44 = .56

PTS: 1 DIF: M REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

39. Smith Enterprises just paid a 10% stock dividend. If the market price of the
stock was $18 per share before the stock dividend, what do you expect it to be afterwards?
a. $18.00
b. $16.36
c. $19.80
d. $17.20
ANS: B
18/(1+.1) = 16.36

PTS: 1 DIF: M REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

40. Smith Enterprises declares a 4-1 stock spilt. If you own 600 shares of Smith
stock, how many share do you own after the split?
a. 600
b. 150
c. 2400
d. 1200
ANS: C
600(4) = 2400

PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

41. Smith Enterprises declares a 1-4 reverse stock split. If you own 600 shares of
Smith stock, how many shares do you own after the split?
a. 600
b. 150
c. 2400
d. 1200
ANS: B
600/4 = 150

PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

NARRBEGIN: Exhibit 14-1

Exhibit 13-1
You currently hold 100 shares of Bavarian Sausage, Inc. stock which you purchased three
months ago at $25.50 and which is currently trading at $28. The stock will pay a $3.75
dividend in a few days and the ex-dividend day is tomorrow. Your personal tax rate on
dividend income is 25% and the capital gains tax is 15%.
NARREND

42. Refer to Exhibit 14-1. If you were to sell the stock today, what would be the
after tax proceeds of the sale?
a. $250.00
b. $212.50
c. $2,762.50
d. $2,800.00
 a. $250.00
b. $212.50
c. $2,762.50
d. $2,800.00
ANS: C
2.50(.15)(100) = 37.50 capital gains tax
proceeds = 2800-37.50 =

PTS: 1 DIF: M REF: 14.4 Real-World Influences on Dividend

Policy
NAT: Analytic skills LOC: acquire an understanding of risk and return

43. Refer to Exhibit 14-1. If you were to sell your stock today, what would be
the after tax return on your investment?
a. 8.33%
b. 9.88%
c. 7.45%
d. 11.27%
ANS: A
after tax gain = (2800-2550)(1-.15) = 212.5
return = 212.5/2550 = .0833

PTS: 1 DIF: M REF: 14.4 Real-World Influences on Dividend

Policy
NAT: Analytic skills LOC: acquire an understanding of risk and return

44. Refer to Exhibit 14-1. If you decide to sell the stock after you received the
dividend and the dividend is fully reflected in the ex-dividend price, what is the total after
tax dollar return on the investment?
a. $2800
b. $2725
c. $2425
d. $2550
ANS: A
ex-dividend: 24.25
capital loss: 24.25-25.50 = -1.25
tax credit: 1.25(.15)100 = 18.75
after tax dividend = 3.75(1-.25)(100) = 281.25
proceeds = 2425 + 281.25 + 18.75 = 2725

PTS: 1 DIF: H REF: 14.4 Real-World Influences on Dividend

Policy
NAT: Analytic skills LOC: acquire an understanding of risk and return

45. Refer to Exhibit 14-1. If you decide to sell the stock after you received the
dividend and the dividend is fully reflected in the ex-dividend price, what is the total after
tax return on the investment?
a. 6.86%
b. 8.33%
c. 11.45%
d. 10.56%
ANS: A
(2725-2550)/2550 = .0686

PTS: 1 DIF: H REF: 14.4 Real-World Influences on Dividend

Policy
NAT: Analytic skills LOC: acquire an understanding of risk and return

46. The board of directors of Smith Enterprises announced a dividend of $1.75

per share on August 2. The dividend will be paid out to all shareholders of record as of
August 10. If you bought 100 shares of Smith Enterprises stock on August 10, how much
dividend are you going to receive?
a. $0
b. $175
c. $1.75
d. $350
ANS: A
Since you bought on the holder-of-record date you are not eligible for dividend payments.

PTS: 1 DIF: M REF: 14.1 Payout Policy Fundamentals

NAT: Reflective thinking LOC: understand stocks and bonds
 47. The board of directors of Smith Enterprises announced a dividend of $1.75
per share on August 2. The dividend will be paid out to all shareholders of record as of
August 10. If you bought 100 shares of Smith Enterprises stock on August 3, how much
total dividend are you going to receive?
a. $0
b. $1.75
c. $175
d. $350
ANS: C
1.75(100) = 175

PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

48. A company’s stock currently trades at $15 per share. The company just
declared a 20% stock dividend. What should be the stock price after the stock dividend took
place?
a. $15.00
b. $12.50
c. $18.50
d. $9.25
ANS: B
15/(1+.2) = $12.50

PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

49. A company’s stock currently trades at $15 per share. The company is going
to undertake a 3-2 stock split. What should be the stock price after the stock split took place?
a. $10
b. $15
c. $22.50
d. $25
ANS: A
$15(2/3) = $10

PTS: 1 DIF: M REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

50. Bavarian Brewhouse had after-tax earnings of $1,500,000 in 2004. The

company needs $2,500,000 for new investments and plans to finance 50% of those
investments with debt. If Bavarian Brew follows a residual dividend policy, what total
dividend will be paid?
a. $1,500,000
b. $0
c. $250,000
d. $500,000
ANS: C
equity needed = 2,500,000(.5) = 1,250,000
residual = 1,500,000 - 1,250,000 = 250,000

PTS: 1 DIF: M REF: 14.4 Real-World Influences on Dividend

Policy
NAT: Analytic skills LOC: understand stocks and bonds

51. A firm’s dividend policy refers to all of the following except to its choice of
a. whether to pay shareholders a cash dividend.
b. how large the cash dividend should be.
c. how frequently a cash dividend should be distributed.
d. who should receive a cash dividend.
ANS: D PTS: 1 DIF: E REF: Learning Objectives
NAT: Reflective thinking LOC: understand stocks and bonds

52. Factors that influence the market’s reaction to dividend policy do not include
a. the current level of a firm’s dividends.
b. the volatility of the dividend stream over time.
c. the income tax that investors must pay when they receive
dividends.
d. the historical level of dividends paid.
ANS: D
Note: historical levels refers only to the level and not the change in levels which would be a
volatility measure.

PTS: 1 DIF: E REF: Learning Objectives

NAT: Reflective thinking LOC: understand stocks and bonds

53. Which of the following are methods to distribute cash to shareholders?

a. cash dividends
b. stock dividends
c. share repurchases
d. both (a) and (c)
ANS: D PTS: 1 DIF: E REF: Learning Objectives
NAT: Reflective thinking LOC: understand stocks and bonds

54. CashOut, Inc. has a current share price of $50. If CashOut plans to pay a $1
dividend, then if we ignore the effect of taxes we would expect the price of CashOut shares
to change by what amount on the ex dividend date?
a. no change since prices will reflect dividend payments on the
announcement date
b. a drop of $1
c. an increase of $1
d. no change since prices are not a function of cash paid to
investors
ANS: B PTS: 1 DIF: M
REF: 14.1 Payout Policy Fundamentals NAT: Analytic skills
LOC: understand stocks and bonds

55. Old Balance common stock has a par value totaling $12,000,000, additional
paid-in-capital totaling $30,000,000 as well as retained earnings of $40,000,000. If Old
Balance is located in a state where the most stringent capital-impairment restrictions exist,
what is the maximum dividend that Old Balance could pay to its shareholders?
a. $82,000,000
b. $70,000,000
c. $40,000,000
d. $30,000,000
ANS: C
12MM and 30MM would have to be excluded leaving the 40MM as the maximum dividend

PTS: 1 DIF: M REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

56. A firm may be legally prevented from paying dividends if

a. it has a debt obligation due within the next month.
b. its assets are greater than its liabilities.
c. it is legally insolvent.
d. it needs to save cash for projects.
ANS: C PTS: 1 DIF: M
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

57. You notice that a company has consistently paid a dividend of $.20 per
quarter except for the quarter one year ago when it paid $.52 when it had an unusually high
level of earnings that the company did not believe was going to be sustainable into the
future. Such a pattern is most indicative of what kind of dividend policy?
a. constant payout ratio dividend policy
b. constant nominal payout dividend policy
c. target dividend payout ratio dividend policy
d. low-regular-and-extra policy dividend policy
ANS: D PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

58. Markus Needman, Inc. just paid a 30% stock dividend to its shareholders. If
the price of the companies shares was $100 before the dividend, what should the price of the
shares be now? If helpful, assume that the company had 500 shares outstanding before the
stock dividend?
a. $100.00
b. $76.92
c. $70.00
d. none of the above
ANS: B
$100 ´ 500 = $50,000 in total market value of equity

$50,000 / (500 * 1.3) shares = 76.92

PTS: 1 DIF: M REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

59. Banana Split Co. has had six 2-for 1 splits since you purchased one share for
$2 seven years ago. If the current price per share is $20, what it the value of your
investment?
a. $2,560
b. $1,280
c. $640
d. none of the above
ANS: B
The progress of the number of shares you own is:

1 - 2 - 4 - 8 - 16 - 32 - 64

64 ´ $20 = $1,280

PTS: 1 DIF: M REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

60. If a firm is wanting to repurchase some of its shares from the market and
wants to pay a uniform price for all of the shares, then what method would it most likely use?
a. open-market share repurchase
b. tender offer
c. executive option repurchase
d. none of the above
ANS: B PTS: 1 DIF: M
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

61. Which of the following firms is most likely to pay out a larger portion of
their earnings to shareholders?
a. a small company
b. a mature company
c. a young company
d. a growth company
ANS: B PTS: 1 DIF: M
REF: 14.2 Factors Affecting Dividend and Share Repurchase Decisions
NAT: Reflective thinking LOC: understand stocks and bonds

62. 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
ANS: D PTS: 1 DIF: M
REF: 14.2 Factors Affecting Dividend and Share Repurchase Decisions
NAT: Reflective thinking LOC: understand stocks and bonds

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
ANS: B PTS: 1 DIF: H
REF: 14.2 Factors Affecting Dividend and Share Repurchase Decisions
NAT: Reflective thinking LOC: understand stocks and bonds

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.
ANS: C PTS: 1 DIF: H
REF: 14.2 Factors Affecting Dividend and Share Repurchase Decisions
NAT: Reflective thinking LOC: understand stocks and bonds

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
ANS: C PTS: 1 DIF: H
REF: 14.2 Factors Affecting Dividend and Share Repurchase Decisions
NAT: Reflective thinking LOC: understand stocks and bonds

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
ANS: A PTS: 1 DIF: E
REF: 14.3 Dividends in Perfect and Imperfect Worlds NAT: Analytic skills
LOC: understand stocks and bonds

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.
ANS: D PTS: 1 DIF: M
REF: 14.3 Dividends in Perfect and Imperfect Worlds NAT: Reflective thinking
LOC: understand stocks and bonds

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.
ANS: A PTS: 1 DIF: M
REF: 14.4 Real-World Influences on Dividend Policy NAT: Reflective thinking
LOC: understand stocks and bonds

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.
ANS: C PTS: 1 DIF: M
REF: 14.4 Real-World Influences on Dividend Policy NAT: Reflective thinking
LOC: understand stocks and bonds

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?
a. $.75
b. $1.00
c. $2.25
d. none of the above
ANS: C
If you sell today, capital gain proceeds retained = 3 ´ (1-.2) = 2.40

If you receive the dividend, the dividend proceeds you retain = 3 ´ (1-.6) =1.80

Therefore, to be indifferent you must have .60 of net capital gain proceeds for your decision
to sell after the ex-dividend date to be equal to selling before the ex-dividend date.

====> .6 = capital gain ´ (.8) ===> capital gain = .75 ===> the share price must fall by 2.25

PTS: 1 DIF: H REF: 14.4 Real-World Influences on Dividend

Policy
NAT: Analytic skills LOC: understand stocks and bonds

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
ANS: A PTS: 1 DIF: M
REF: 14.4 Real-World Influences on Dividend Policy NAT: Reflective thinking
LOC: understand stocks and bonds

72. If you are a company that has a very large amount of cash in its treasury and
the IRS is concerned that you have been hoarding cash to prevent your shareholders from
having to pay dividend taxes, which of the following would be your most likely method of
getting cash into your shareholders hands?
a. repurchase shares
b. pay a cash dividend
c. repurchase debt
d. none of the above
ANS: B PTS: 1 DIF: M
REF: 14.4 Real-World Influences on Dividend Policy NAT: Reflective thinking
LOC: understand stocks and bonds

73. If transaction costs are significant, then which of the following might be the
effect on cash dividends and share repurchases?
a. dividends might be more likely to be paid from the investors
preference argument
b. dividends might be less likely to be paid from the firm’s
perspective of raising capital
c. dividend choices are always relevant
d. none of the above
ANS: A PTS: 1 DIF: M
REF: 14.4 Real-World Influences on Dividend Policy NAT: Reflective thinking
LOC: understand stocks and bonds

74. A firm has just instituted a regular dividend for the first time in its history.
That action might be interpreted in the market as
a. a signal the it believes that it will be able to permanently
sustain the future dividends
b. a signal that its growth opportunity set might be slowing
c. a signal that it is a high quality firm
d. all of the above
ANS: D PTS: 1 DIF: M
REF: 14.4 Real-World Influences on Dividend Policy NAT: Reflective thinking
LOC: understand stocks and bonds

75. The free cash flow hypothesis predicts that

a. dividend increases should be viewed as good news by
investors.
b. firms in industries that generate large amount of cash flow
should also have the highest dividend payout ratios.
c. managerial compensation should be designed to pursue value-
maximizing dividend policies.
d. all of the above.
ANS: D PTS: 1 DIF: M
REF: 14.4 Real-World Influences on Dividend Policy NAT: Reflective thinking
LOC: understand stocks and bonds

76. Which of the following statements is (are) true?

a. Shareholders have a legal right to receive dividends.
b. A firm's board of directors must decide whether to pay
dividends.
c. Most U.S. firms that pay cash dividends do so only once
every year.
d. All of the above are true.
e. Only (a) and (c) are true.
ANS: B PTS: 1 DIF: E
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

77. Which type of firm is more likely to follow a low-regular-and-extra-policy of

dividend payout?
a. One in a stable industry with stable earnings.
b. One that recently experienced higher-than-normal earnings
that are expected to be temporary.
c. One that recently experienced a downswing in earnings that is
expected to be temporary.
d. none of the above
ANS: B PTS: 1 DIF: M
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

78. Which of the following is not a practical motive for stock repurchases?
a. The desire to reduce the amount of the firm's outstanding
debt.
b. Having shares available for employee stock-option plans.
c. Retiring shares of common stock.
d. Obtaining shares to be used in acquisitions.
e. All of the above are practical motives for stock repurchases.
ANS: A PTS: 1 DIF: M
REF: 14.1 Payout Policy Fundamentals NAT: Reflective thinking
LOC: understand stocks and bonds

79. Which of the following statements is true regarding trading and transactions
costs?
a. As long as share issues are costless, investors are indifferent
about whether to receive returns in the form of capital gains
or as cash dividends on shares.
b. If issuing securities entails large costs, both corporations and
stockholders should prefer a full-retention strategy regarding
dividends.
c. If investors find creating homemade dividends too costly,
they would not be willing to pay a premium for stocks that
habitually pay dividends.
d. All of the above statements are true.
e. Only statements (a) and (b) are true.
ANS: E PTS: 1 DIF: H
REF: 14.4 Real-World Influences on Dividend Policy NAT: Reflective thinking
LOC: understand stocks and bonds

80. Which of the following statements is true?

 a. Dividend initiations send a weak signal to the market about
management's assessment of the firm's long-run ability to
general cash.
b. Dividend initiations send a strong signal to the market about
management's assessment of the firm's long-run ability to
general cash.
c. Dividend cuts rarely impact a firm's stock price.
d. Dividend increases suggest a temporary increase in a firm's
normal level of profitability.
e. All of the above statements are false.
ANS: B PTS: 1 DIF: M
REF: 14.4 Real-World Influences on Dividend Policy NAT: Reflective thinking
LOC: understand stocks and bonds

81. Which of the following statements is (are) true?

a. Small, rapidly-growing firms usually have excess cash and are
likely to pay cash dividends.
b. Managers of firms with free cash flow should retain the cash
and invest in new projects, regardless of the projects' NPVs, as
the transaction costs associated with paying dividends is too
costly.
c. Managers of firms with free cash flow should begin to pay
dividends to ensure that they will not invest the free cash flow
in negative-NPV projects.
d. All of the above statements are false.
ANS: C PTS: 1 DIF: M
REF: 14.4 Real-World Influences on Dividend Policy NAT: Reflective thinking
LOC: understand stocks and bonds

82. The central predictions of the agency cost/contracting model of dividend

payments include:
a. Dividend initiations and increases should lead to increases in
the firm's stock price when announced.
b. Firms and industries that generate the largest amounts of free
cash flow should have the highest dividend payout ratios.
c. Managerial compensation contracts will be designed to entice
managers to pursue a value-maximizing dividend policy.
d. All of the above
e. Only (a) and (b)
ANS: D PTS: 1 DIF: H
REF: 14.4 Real-World Influences on Dividend Policy NAT: Reflective thinking
LOC: understand stocks and bonds

83. A firm's investment opportunity set is a function of a firm's:

a. size
b. industry
c. capital intensity of the firm's production process
d. the free cash flow generated
e. all of the above
ANS: E PTS: 1 DIF: M
REF: 14.5 A Checklist for Dividend Payments NAT: Reflective thinking
LOC: understand stocks and bonds

84. Which of the following factors do not have an impact upon a firm's dividend
policy?
a. transactions costs
b. taxes
c. the legal system in the firm's home country
d. the stability of a firm's earnings
e. All of the above have an impact on a firm's dividend policy.
ANS: E PTS: 1 DIF: M
REF: 14.5 A Checklist for Dividend Payments NAT: Reflective thinking
LOC: understand stocks and bonds

85. An increase in which of the following variables is likely to lead to an increase

in a firm's dividend payout?
a. Positive-NPV investment opportunities
b. Personal tax rates on dividend income
c. Asset growth rate
d. Free cash flow generated
ANS: D PTS: 1 DIF: M
REF: 14.5 A Checklist for Dividend Payments NAT: Reflective thinking
LOC: understand stocks and bonds

86. Emma International has earnings per share of $3.29; just paid dividend $1.25
and expects a ROI next year (and the foreseeable future) of 14% What is the dividend
payout ratio?
a. 37.99%
b. 14.00%
c. 62.01%
d. 23.99%
ANS: A
EPS 3.2900
DPS 1.2500
Payout ratio 0.3799
ROI 0.1400

PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

87. Emma International has earnings per share of $3.29; just paid dividend $1.25
and expects a ROI next year (and the foreseeable future) of 14% What is the retention ratio?
a. 37.99%
b. 14.00%
c. 62.01%
d. 23.99%
ANS: C
EPS 3.2900
DPS 1.2500
Payout ratio 0.3799
ROI 0.1400

PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

88. Emma International has earnings per share of $3.29; just paid dividend $1.25
and expects a ROI next year (and the foreseeable future) of 14% What is the expected
growth rate?
a. 1.22%
b. 5.32%
c. 23.56%
d. 8.68%
ANS: D
EPS 3.2900
DPS 1.2500
Payout ratio 0.3799
ROI 0.1400
Retntion ratio 0.6201
Growth rate 0.0868

PTS: 1 DIF: M REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

89. Emma International has earnings per share of $3.29; just paid dividend $1.25
and expects a ROI next year (and the foreseeable future) of 14% What is the expected next
year dividend?
a. $1.359
b. $1.316
c. $1.259
d. Not enough information
ANS: A
EPS 3.2900
DPS 1.2500
Payout ratio 0.3799
ROI 0.1400
Retntion ratio 0.6201
Growth rate 0.0868
Next Dividend 1.3585
PTS: 1 DIF: M REF: 14.1 Payout Policy Fundamentals
NAT: Analytic skills LOC: understand stocks and bonds

90. Emma International has earnings per share of $3.29; just paid dividend $1.25
and expects a ROI next year (and the foreseeable future) of 14%. If the appropriate discount
rate is 20% what is the intrinsic value of the stock?
a. $25.540
b. $12.002
c. $11.043
d. Not enough information
ANS: B
EPS 3.2900
DPS 1.2500
Payout ratio 0.3799
ROI 0.1400
Retntion ratio 0.6201
Growth rate 0.0868
Next Dividend 1.3585
Discount rate 0.2
Stock Value 12.0019

PTS: 1 DIF: H REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

91. Emma International has earnings per share of $3.29; just paid dividend $1.25
and expects a ROI next year (and the foreseeable future) of 14%. If the stock has a beta of
1.2, and the current risk -free and market premium is 4% and 5% respectively, what is the
intrinsic value of the stock?
a. $ 90.567
b. $ 94.758
c. $ 102.984
d. Not enough information
ANS: C
EPS 3.2900
DPS 1.2500
Payout ratio 0.3799
ROI 0.1400
Retntion ratio 0.6201
Growth rate 0.0868
Next Dividend 1.3585
beta 1.2000
risk free rate 0.0400
Market premium 0.0500
Discount rate 0.1000
Stock Value 102.983871

PTS: 1 DIF: H REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

92. Roxy International has earnings per share of $4.05; just paid dividend $2.03
and expects a ROI next year (and the foreseeable future) of 15% What is the dividend
payout ratio?
a. 50.12%
b. 15.00%
c. 49.88%
d. 35.12%
ANS: A
EPS 4.0500
DPS 2.0300
Payout ratio 0.5012
ROI 0.1500

PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

93. Roxy International has earnings per share of $4.05; just paid dividend $2.03
and expects a ROI next year (and the foreseeable future) of 15% What is the retention ratio?
a. 50.12%
b. 64.88%
c. 49.88%
d. 35.12%
 a. 50.12%
b. 64.88%
c. 49.88%
d. 35.12%
ANS: C
EPS 4.0500
DPS 2.0300
Payout ratio 0.5012
ROI 0.1500

PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

94. Roxy International has earnings per share of $4.05; just paid dividend $2.03
and expects a ROI next year (and the foreseeable future) of 15% What is the expected
growth rate?
a. 1.12%
b. 7.52%
c. 25.00%
d. 7.48%
ANS: D
EPS 4.0500
DPS 2.0300
Payout ratio 0.5012
ROI 0.1500
Retntion ratio 0.4988
Growth rate 0.0748

PTS: 1 DIF: M REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

95. Roxy International has earnings per share of $4.05; just paid dividend $2.03
and expects a ROI next year (and the foreseeable future) of 15% What is the expected next
year dividend?
a. $2.182
b. $2.183
c. $2.041
d. Not enough information
ANS: A
EPS 4.0500
DPS 2.0300
Payout ratio 0.5012
ROI 0.1500
Retntion ratio 0.4988
Growth rate 0.0748
Next Dividend 2.1819

PTS: 1 DIF: M REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

96. Roxy International has earnings per share of $4.05; just paid dividend $2.03
and expects a ROI next year (and the foreseeable future) of 15%. If the appropriate discount
rate is 20% what is the intrinsic value of the stock?
a. $29.020
b. $16.216
c. $17.429
d. Not enough information
ANS: C
EPS 4.0500
DPS 2.0300
Payout ratio 0.5012
ROI 0.1500
Retntion ratio 0.4988
Growth rate 0.0748
Next Dividend 2.1819
Discount rate 0.2
Stock Value 17.4292

PTS: 1 DIF: H REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

97. Roxy International has earnings per share of $4.05; just paid dividend $2.03
and expects a ROI next year (and the foreseeable future) of 15%. If the stock has a beta of
1.1, and the current risk -free and market premium is 4% and 5% respectively, what is the
intrinsic value of the stock?
a. $108.093
b. $100.569
c. $72.729
d. Not enough information
ANS: A
EPS 4.0500
DPS 2.0300
Payout ratio 0.5012
ROI 0.1500
Retntion ratio 0.4988
Growth rate 0.0748
Next Dividend 2.1819
beta 1.1000
risk free rate 0.0400
Market premium 0.0500
Discount rate 0.0950
Stock Value 108.092844

PTS: 1 DIF: H REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

98. Louis International has earnings per share of $2.25; just paid dividend $1.05
and expects a ROI next year (and the foreseeable future) of 16% What is the dividend
payout ratio?
a. 46.67%
b. 16.00%
c. 53.33%
d. 30.67%
ANS: A
EPS 2.2500
DPS 1.0500
Payout ratio 0.4667
ROI 0.1600

PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

99. Louis International has earnings per share of $2.25; just paid dividend $1.05
and expects a ROI next year (and the foreseeable future) of 16% What is the dividend
payout ratio?
a. 46.67%
b. 16.00%
c. 53.33%
d. 30.67%
ANS: C
EPS 2.2500
DPS 1.0500
Payout ratio 0.4667
ROI 0.1600

PTS: 1 DIF: E REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

100. Louis International has earnings per share of $2.25; just paid dividend $1.05
and expects a ROI next year (and the foreseeable future) of 16% What is the expected
growth rate?
a. 1.37%
b. 8.53%
c. 7.47%
d. 24.89%
ANS: B
EPS 2.2500
DPS 1.0500
Payout ratio 0.4667
ROI 0.1600
Retntion ratio 0.5333
Growth rate 0.0853
PTS: 1 DIF: M REF: 14.1 Payout Policy Fundamentals
NAT: Analytic skills LOC: understand stocks and bonds

101. Louis International has earnings per share of $2.25; just paid dividend $1.05
and expects a ROI next year (and the foreseeable future) of 16% What is the expected next
year dividend?
a. $1.140
b. $1.128
c. $1.058
d. Not enough information
ANS: A
EPS 2.2500
DPS 1.0500
Payout ratio 0.4667
ROI 0.1600
Retntion ratio 0.5333
Growth rate 0.0853
Next Dividend 1.1396

PTS: 1 DIF: M REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

102. Louis International has earnings per share of $2.25; just paid dividend $1.05
and expects a ROI next year (and the foreseeable future) of 16%. If the appropriate discount
rate is 20% what is the intrinsic value of the stock?
a. $9.157
b. $9.938
c. $15.263
d. Not enough information
ANS: B
EPS 2.2500
DPS 1.0500
Payout ratio 0.4667
ROI 0.1600
Retntion ratio 0.5333
Growth rate 0.0853
Next Dividend 1.1396
Discount rate 0.2
Stock Value 9.9384

PTS: 1 DIF: H REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds

103. Louis International has earnings per share of $2.25; just paid dividend $1.05
and expects a ROI next year (and the foreseeable future) of 16%. If the stock has a beta of
1.8, and the current risk -free and market premium is 2% and 5% respectively, what is the
intrinsic value of the stock?
a. $46.200
b. $42.568
c. $45.584
d. Not enough information
ANS: A
EPS 2.2500
DPS 1.0500
Payout ratio 0.4667
ROI 0.1600
Retntion ratio 0.5333
Growth rate 0.0853
Next Dividend 1.1396
beta 1.8000
risk free rate 0.0200
Market premium 0.0500
Discount rate 0.1100
Stock Value 46.2

PTS: 1 DIF: H REF: 14.1 Payout Policy Fundamentals

NAT: Analytic skills LOC: understand stocks and bonds