Q&A Hero

Q: The Green Florist has 15,000 shares of stock outstanding with a par value of $1 per share and a market value of $14.40 a share. The company just announced a reverse stock split of two-for-three. Currently, you own 300 shares of this stock. How many shares will you own after the reverse stock split? A) 150 B) 200 C) 450 D) 600 E) 75

Q: The Olive Vase has 48,000 shares of stock outstanding with a par value of $1 per share and a market value of $13 a share. The company just announced a reverse stock split of three-for-seven. Currently, you own 400 shares of this stock. What will be the total value of your shares after the reverse stock split? A) $3,300 B) $6,120 C) $5,200 D) $9,067 E) $12,133

Q: Purvis Lawn Products has 5,400 shares of stock outstanding at a market price of $6.37 a share. What will the market price per share be if the company does a reverse stock split of one-for-three? A) $2.12 B) $6.37 C) $9.37 D) $21.10 E) $19.11

Q: The common stock of Gillen Entertainment is selling for $47 a share. The firm has a book value of $487,400 and a market value of $938,000. How many shares of stock will be outstanding if the firm does a stock split of three-for-two? A) 26,815 B) 15,555 C) 27,183 D) 29,936 E) 32,211

Q: The common stock of High Energy is selling for $58 a share. Currently, the firm has a total market value of $1,314,900 and a book value of $647,600. How many shares of stock will be outstanding if the firm does a stock split of five-for-two? A) 27,914 shares B) 49,377 shares C) 54,168 shares D) 47,727 shares E) 56,677 shares

Q: Jean's Warehouse has 22,000 shares of stock outstanding with a current market value of $971,520. The company has retained earnings of $218,740 and paid in surplus of $384,200. The company is planning a stock split of four-for-three. What will be the retained earnings account value after the split? A) $164,055 B) $218,740 C) $153,600 D) $193,653 E) $245,500

Q: East Coast Marina has 65,000 shares of stock outstanding. The current market value of the firm is $2.87 million. The company has capital in excess of par value of $1.09 million on its balance sheet. The company is planning a stock split of five-for-four. What will be the market price per share after the split? A) $44.15 B) $35.32 C) $41.08 D) $55.19 E) $52.31

Q: The Mining Co. has 25,000 shares of stock outstanding. The current market value of the firm is $789,000. The company has retained earnings of $407,000, capital in excess of par value of $229,000, and a common stock account value of $25,000. The company is planning a reverse stock split of two-for-three. What will be the par value per share after the split? A) $.50 B) $.33 C) $1.00 D) $2.50 E) $1.50

Q: Cooper Brands has 36,000 shares of stock outstanding at a market price of $61.10 a share. The company just announced a stock split of five-for-thee. What will be the market price per share after the split? A) $36.66 B) $34.28 C) $61.10 D) $104.18 E) $101.83

Q: The Peace River Corporation has 52,000 shares of stock outstanding at a market price of $41 a share. The company has just announced a stock split of five-for-three. How many shares of stock will be outstanding after the split? A) 66,667 shares B) 31,200 shares C) 52,000 shares D) 86,667 shares E) 62,400 shares

Q: Western Mountain Water has 35,000 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $948,000. The balance sheet shows a capital in excess of par value account balance of $72,800 and retained earnings of $368,400. The company just announced a stock split of three-for-one. What will be the capital in excess of par value account balance after the split? A) $24,267 B) $54,400 C) $72,800 D) $166,667 E) $218,400

Q: The Peanut Shack has 3,500 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $178,200. The company just announced a stock split of seven-for-three. What will be the market price per share after the split? A) $30.33 B) $21.82 C) $16.18 D) $118.80 E) $94.93

Q: Prezario's has 14,500 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $287,000. Currently, the retained earnings account balance is $197,000 and the capital in excess of par value account balance is $47,900. The company just announced a stock split of three-for-one. What is the common stock account balance after the stock split? A) $29,000 B) $14,500 C) $4,833 D) $7,250 E) $43,500

Q: Mario's has 24,000 shares of stock outstanding with a par value of $1 per share and a market price of $11.40 a share. The balance sheet shows $68,600 in the capital in excess of par value account, and $34,910 in the retained earnings account. The company just announced a stock split of three-for-one. What will be the capital in excess of par account value after the split? A) $22,867 B) $68,600 C) $46,000 D) $148,200 E) $205,800

Q: South Shore Limited has 14,500 shares of stock outstanding with a par value of $1 per share and a market price of $54.10 a share. The firm just announced a stock split of seven-for-two. What will be the par value of the stock after the split? A) $.29 B) $.58 C) $1.00 D) $7.00 E) $3.50

Q: Alfonzo's Italian House has 17,000 shares of stock outstanding with a par value of $1 per share and a market price of $24.60 a share. The firm just announced a stock split of three-for-two. What will be the market price per share after the split? A) $16.40 B) $18.60 C) $28.20 D) $24.60 E) $36.90

Q: Della's Pools has 36,000 shares of stock outstanding with a par value of $1 per share and a market price of $38 a share. The company just announced a stock split of four-for-three. How many shares of stock will be outstanding after the split? A) 27,000 B) 14,400 C) 12,000 D) 36,000 E) 48,000

Q: Verbal Communications has 18,400 shares of stock outstanding with a par value of $1 per share and a market value of $43 per share. The firm just announced a stock dividend of 100 percent. What is the market value per share after the dividend? A) $21.50 B) $20.50 C) $27.00 D) $26.50 E) $43.00

Q: The Tanning Bed has 8,500 shares of stock outstanding with a par value of $1 per share and a market value of $12 per share. The balance sheet shows $34,200 in the capital in excess of par account, and $51,300 in the retained earnings account. The firm just announced a 100 percent stock dividend. What will be the value of the common stock account after the dividend? A) $8,500 B) $10,000 C) $12,750 D) $15,000 E) $17,000

Q: Kurt's Market has 16,000 shares of stock outstanding with a par value of $1 per share and a market value of $17 per share. The balance sheet shows $16,000 in the common stock account, $236,000 in the capital in excess of par account, and $314,800 in the retained earnings account. The firm just announced a stock dividend of 65 percent. What will be the balance in the retained earnings account after this dividend? A) $304,400 B) $316,800 C) $314,800 D) $308,600 E) $325,200

Q: Val's Marina Supply has 7,500 shares of stock outstanding with a par value of $1 per share and a market value of $28 per share. The balance sheet shows $7,500 in the common stock account, $32,400 in the capital in excess of par account, and $81,800 in the retained earnings account. The firm just announced a 100 percent stock dividend. What is the value of the capital in excess of par account after the dividend? A) $24,900 B) $16,200 C) $32,400 D) $39,900 E) $64,800

Q: Ma's Fried Chicken has 21,000 shares of stock outstanding with a par value of $1 per share and a market value of $41 per share. The balance sheet shows $121,000 in the capital in excess of par account and $204,000 in the retained earnings account. The firm just announced a 5 percent stock dividend. What will be the total owners' equity after the dividend? A) $354,000 B) $298,000 C) $346,000 D) $321,000 E) $325,000

Q: Randall's has 34,000 shares of stock outstanding with a par value of $1 per share. The market value is $23 per share. The balance sheet shows $152,000 in the capital in excess of par account, $34,000 in the common stock account, and $67,500 in the retained earnings account. The firm just announced a 5 percent (small) stock dividend. What will be the balance in the retained earnings account after the dividend? A) $28,400 B) $29,500 C) $30,500 D) $27,800 E) $32,500

Q: Josh's Inc. has 4,800 shares of stock outstanding with a par value of $1 per share and a market value of $19 a share. The balance sheet shows $149,000 in the capital in excess of par account, $4,800 in the common stock account, and $192,800 in the retained earnings account. The firm just announced a stock dividend of 10 percent. What is the value of the capital in excess of par account after the dividend? A) $161,300 B) $149,000 C) $152,280 D) $157,640 E) $164,400

Q: Built Rite Corp. is evaluating an extra dividend versus a share repurchase. In either case, $7,500 would be spent. Current earnings are $1.24 per share, and the stock currently sells for $32 per share. There are 5,000 shares outstanding. Ignore taxes and other imperfections. You own one share of stock in this company. If the company issues the dividend, your total investment will be worth ________ as compared to ________ if the company opts for a share repurchase. A) $30.50; $30.50 B) $27.50; $32.00 C) $27.50; $30.50 D) $27.50; $27.50 E) $32.00; $32.00

Q: Delaware Trust has 2,400 shares of common stock outstanding at a market price per share of $63. Currently, the firm has excess cash of $3,500, total assets of $728,900, and net income of $41,320. The firm has decided to pay out all of its excess cash as a cash dividend. What will the earnings per share be after this dividend is paid? A) $9.69 B) $12.86 C) $17.22 D) $13.07 E) $19.24

Q: The equity of Blooming Roses has a total market value of $148,900. Currently, the firm has excess cash of $4,200 and net income of $21,400. There are 1,100 shares of stock outstanding. What will be the percentage change in the stock price per share if the company pays out all of its excess cash as a cash dividend? A) −3.14 percent B) −2.82 percent C) −2.75 percent D) −3.08 percent E) 0 percent

Q: Tucker's National Distributing has a current market value of equity of $32,400. Currently, the firm has excess cash of $2,100, total assets of $22,400, net income of $3,210, and 800 shares of stock outstanding. The company is going to use all of its excess cash to repurchase shares of stock. What will the stock price per share be after the stock repurchase is completed? A) $40.87 B) $39.94 C) $40.06 D) $40.50 E) $39.42

Q: The market value balance sheet for Cherry Pie Corp. reflects cash of $31,020, fixed assets of $539,750, and equity of $286,800. There are 6,000 shares of stock outstanding with a par value of $1 per share. The company has announced that it is going to repurchase $20,000 of stock. What will the price of the stock be after this repurchase? A) $47.80 B) $46.60 C) $46.20 D) $47.60 E) $46.80

Q: TJ's has a market value equal to its book value. Currently, the firm has excess cash of $218,500, other assets of $897,309, and equity of $547,200. The firm has 40,000 shares of stock outstanding and net income of $59,800. Management has decided to spend 15 percent of the excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed? A) 47,937 B) 48,050 C) 37,604 D) 35,578 E) 41,584

Q: Webster United is paying a dividend of $1.09 per share today. There are 225,000 shares outstanding with a market price of $31.17 per share prior to the dividend payment. Ignore taxes. Before the dividend, the company had earnings per share of $2.11. As a result of this dividend, the: A) retained earnings will decrease by $225,000. B) retained earnings will increase by $245,250. C) total value of the company will not change. D) earnings per share will increase to $3.20. E) price-earnings ratio will be 14.26.

Q: Water Mills has a market value equal to its book value. Currently, the company has excess cash of $1,368, other assets of $35,807, and equity valued at $23,750. There are 2,500 shares of stock outstanding and net income is $470. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase? A) $.19 B) $.33 C) $.26 D) $.08 E) $.13

Q: Al owns 250 shares of M&M Enterprises and earns 12.9 percent on his investment. M&M recently stated that it will pay dividends per share of $.69 this year and $.72 next year. Al does not want any dividend income this year but does want as much dividend income as possible next year. Ignoring taxes, what will Al's total homemade dividend be next year? A) $352.50 B) $366.38 C) $330.50 D) $341.80 E) $374.75

Q: You own 400 shares of stock in A-Z Tours. The company plans to pay a dividend of $.65 in Year 1 and a final liquidating dividend of $28.50 per share in Year 2. The required return is 15.6 percent. If you only want $200 total in dividends in the first year, what will be your homemade dividend in the second year? A) $12,696 B) $10,764 C) $11,469 D) $11,402 E) $12,878

Q: You own 600 shares of stock in Avondale Corporation. The company plans to pay a dividend of $2.48 per share in one year and a final liquidating dividend of $20.10 per share two years from now. The required return on Avondale stock is 16.3 percent. What will your dividend income be this year if you use homemade dividends to create two equal annual dividend payments? A) $6,270 B) $6,712 C) $5,667 D) $6,376 E) $6,400

Q: You own 900 shares of Dell Hardware. The company plans on issuing a dividend of $1.98 a share one year from now and then issuing a final liquidating dividend of $11.32 a share after one additional year. Your required rate of return on this security is 16.5 percent. Ignoring taxes, what is the value of one share of this stock to you today? A) $10.30 B) $9.43 C) $10.04 D) $9.92 E) $10.32

Q: On July 9, you purchased 800 shares of Blue Water stock for $32 a share. On August 4, you sold 200 shares of this stock for $33 a share. You sold an additional 200 shares on August 14 at a price of $34.50 a share. The company declared a dividend of $.76 per share on August 3 to holders of record as of Monday, August 17. This dividend is payable on September 15. How much dividend income will you receive on September 15? A) $304 B) $418 C) $456 D) $360 E) $608

Q: Aaron purchased 500 shares of KMP stock on May 8. On May 16, he purchased another 200 shares and then on May 20 he purchased a final 100 shares of KMP stock. The company declared a dividend of $.94 a share on May 6 to holders of record on Friday, May 22. The dividend is payable on June 12. How much dividend income will Steve receive on June 12? A) $752 B) $640 C) $658 D) $728 E) $680

Q: The Green Fiddle has declared a dividend of $2.60 per share. Suppose capital gains are not taxed but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Green Fiddle stock closed at $36.80 per share today and the stock goes ex dividend tomorrow. What will be the ex-dividend price? A) $34.59 B) $39.40 C) $36.80 D) $34.20 E) $34.70

Q: The market value balance sheet for Apple Pie Corp. reflects cash of $42,000, fixed assets of $319,000, and equity of $237,000. There are 7,500 shares of stock outstanding with a par value of $1 per share. The company has declared a dividend of $1.03 per share. The stock goes ex dividend tomorrow. Ignore any tax effects. What will be the price of the stock tomorrow morning? A) $32.38 B) $32.20 C) $30.57 D) $32.15 E) $31.60

Q: Plyler Cabinets declared a dividend of $1.32 per share on May 30 to holders of record on Monday, June 12. The dividend is payable on June 16. Sara purchased 300 shares of this stock on Thursday, June 8. How much dividend income will she receive on June 12 from these shares? A) $0 B) $396 C) $167 D) $198 E) $132

Q: A company wants to maintain a stock price around $16 a share. Due to a recent market downturn, the stock is currently selling for $6 a share. The company should consider a ________ stock split. A) 3-for-1 B) 4-for-1 C) 1-for-3 reverse D) 1-for-4 reverse E) 1-for-5 reverse

Q: A one-for-four reverse stock split will increase: A) the par value by 25 percent. B) the number of shares outstanding by 400 percent. C) the market value but not affect the par value per share. D) a $1 par value to $4. E) a $1 par value to $5.

Q: Alta Gems stock is currently trading at $36 a share. The company believes its primary clientele can afford to spend between $2,000 and $2,500 to purchase a round lot of 100 shares. This company should consider a: A) reverse stock split. B) liquidating dividend. C) stock dividend. D) stock split. E) special dividend.

Q: Which one of the following is a direct result of a two-for-one stock split? A) A 100 percent increase in the number of shareholders B) A 100 percent increase in the common stock account balance C) A 100 percent decrease in the stock price D) A 50 percent increase in the number of shares outstanding E) A 50 percent decrease in the par value per share

Q: Stock splits can be used to: A) adjust the market price of a stock so it falls within a preferred trading range. B) decrease a company's excess cash thereby lowering agency costs. C) increase the par value per share while decreasing the market price per share. D) increase the total equity of a firm. E) adjust the debt-equity ratio to its preferred level.

Q: A stock split: A) increases the total value of the common stock account. B) decreases the value of the retained earnings account. C) increases the par value per share. D) increases the value of the capital in excess of par account. E) decreases the market value per share.

Q: Which one of the following is the best justification for a reverse stock split? A) Improve the stock's respectability B) Avoid delisting C) Reduce transaction costs for shareholders D) Improve the stock's liquidity E) Increase the par value per share

Q: Revol-Tech is a technology company with excellent growth prospects. The company wishes to do something to acknowledge the loyalty of its shareholders but needs all of its available cash to fund its rapid growth. The market price of the stock is currently trading at the upper end of its preferred trading range. The company is most apt to consider which one of the following in this situation? A) Liquidating dividend B) Stock split C) Reverse stock split D) Extra cash dividend E) Special cash dividend

Q: A large stock dividend: A) reduces retained earnings by the total market value of the issued shares. B) reduces the par value per share. C) reduces retained earnings by the par value of each share issued. D) increases the capital in excess of par value by the market value minus the par value of each share issued. E) does not affect the equity accounts or the par value per share.

Q: Which one of the following is a result of a small stock dividend? A) Increase in the retained earnings account balance B) Decrease in total owner's equity C) Decrease in cash D) Decrease in capital in excess of par value E) Increase in the common stock account balance

Q: A small stock dividend is defined as a stock dividend of less than ________ percent. A) 10 to 15 B) 15 to 20 C) 20 to 25 D) 25 to 30 E) 30 to 35

Q: A small stock dividend: A) increases the common stock account by the market price of each share issued. B) reduces cash by the total market value of the issued shares. C) affects the par value per share but not the equity account balances. D) reduces retained earnings by the market price of each share issued. E) does not affect the capital in excess of par value account.

Q: A reverse stock split is defined as a(n): A) increase in the number of shares outstanding. B) company buying back existing shares of its stock on the open market. C) company issuing additional shares to its existing shareholders. D) decrease in the number of shares outstanding without affecting total owners' equity. E) decrease in both the number of shares outstanding and the market price per share.

Q: Bell Weather Markets has recently sold for as little as $8 a share and as much as $15 a share. The difference between these two prices is referred to as the: A) price variance. B) bid-ask spread. C) trading range. D) opening price. E) closing price.

Q: Which one of the following does not affect the total equity of a company but does increase the number of shares outstanding? A) Special dividend B) Stock split C) Share repurchase D) Rights offer E) Liquidating dividend

Q: Which one of the following involves a payment in shares that increases the number of shares a shareholder owns but also decreases the value per share? A) Cash dividend B) Stock dividend C) Stock repurchase D) Stock split E) Reverse stock split

Q: Which one of the following statements is correct? A) Companies prefer to cut dividend payments rather than borrow money to fund a short-term cash need. B) Share repurchases tend to increase agency costs. C) Maintaining a steady dividend is a key goal of most dividend-paying companies. D) Short-term fluctuations in cash flows are the key factor in determining a company's dividend policy. E) Stock prices tend to ignore unexpected changes in dividend payments.

Q: Which one of the following statements appears to be supported by the current dividend policies of U.S. industrial firms? A) Companies tend to increase the dividend amount per share, even when it's unclear if the increase can be maintained. B) Investors no longer react to changes, either up or down, in dividends. C) Newer, high-growth firms tend to pay larger dividends than mature firms. D) Dividends are still viewed by shareholders as a signal of a company's future outlook. E) Managers are no longer hesitant to lower dividend payments.

Q: Which one of the following statements is correct? A) A reduction in personal tax rates tends to lead to lower dividends. B) Dividends tend to fluctuate significantly from quarter to quarter. C) Earnings growth tends to lag dividend growth. D) Dividend payments are highly concentrated in a relatively small set of large companies. E) Non-dividend-paying companies are generally more apt to commence paying regular dividends than to implement a stock repurchase program.

Q: Aaron owns 1,600 shares of LP Gas stock which he purchased six years ago at a price of $18 a share. Today, these shares are selling for $26 each. Assume a tax rate of 20 percent applies to both dividend income and capital gains received by individuals. Ignore costs. Given this hypothetical assumption, from Aaron's point of view a stock repurchase today would: A) be equivalent to a cash dividend. B) be more desirable than a cash dividend in respect to taxes. C) result in the same tax liability as an equivalent cash dividend. D) be more highly taxed than a cash dividend. E) be totally unacceptable to him.

Q: If you ignore taxes and costs, a stock repurchase will: A) increase the total assets of the firm. B) increase the earnings per share. C) increase the total equity of the firm. D) reduce the PE ratio more than an equivalent stock dividend. E) not affect the company's total assets.

Q: Which one of the following is a result of a stock repurchase? A) Increase in the number of shares outstanding B) Increase in the market price per share C) Increase in the total equity of the repurchasing firm D) Decrease in EPS E) PE ratio equal to that resulting from a comparable cash dividend

Q: A stock repurchase program: A) requires all shareholders to sell a fraction of their shares. B) is preferred over a high-dividend program only by tax-exempt shareholders. C) decreases both the number of shares outstanding and the market price per share. D) has no effect on a company's financial statements. E) is essentially the same as a cash dividend program provided there are no taxes or other costs.

Q: Which one of the following statements related to stock repurchases is correct? A) U.S. industrial firms have increased their stock repurchases every year for each of the past 20 years. B) The tax law change in May 2003 led to a huge increase in stock repurchases and a reduction in dividend payments. C) A tender offer indicates that a company is willing and able to purchase as many shares as shareholders wish to sell. D) All stock repurchases must be identified as such to the selling party. E) Stock repurchases can be a relatively tax-efficient method of distributing cash to shareholders.

Q: Which one of the following statements related to stock repurchases is correct? A) An open market stock repurchase increases the total wealth of a shareholder if you ignore taxes, costs, and market imperfections. B) Targeted repurchases must be offered to all shareholders but can be done in steps such that only a portion of the shareholders have the option to sell at any one point in time. C) When a company wishes to repurchase shares in the open market, it will do so in a special trading session that is set up by the SEC. D) A company may spend more cash over the course of a year on stock repurchases than it does on cash dividends. E) Tender offer prices must be set equal to the opening market price on the day the tender offer is announced.

Q: HJ Corporation has excess cash and has opted to buy some of its outstanding shares. What is this process of buying called? A) Stock dividend B) Stock split C) Stock repurchase D) Reverse stock split E) Stock repeal

Q: The common stock of Dayton Dry Goods has historically had a low dividend yield that is expected to continue. As a result, the majority of its shareholders are individuals who prefer capital gains over cash dividends for tax reasons. The fact that most of these shareholders have similar characteristics is referred to as the ________ effect. A) information content B) clientele C) investor D) distribution E) market reaction

Q: What is the information content effect? A) Any type of new information that causes a company to cease paying dividends B) Any news announcement that was anticipated and thus produces no reaction from investors C) The primary contributing data that helps directors determine the amount of a particular dividend payment D) Any type of reaction from a shareholder in response to a news announcement related to the stock issuer E) The financial market's reaction to a change in the amount of a company's dividend

Q: The dividend market is in equilibrium when: A) all companies adopt a low dividend policy. B) half of the companies adopt a low dividend policy and half adopt a high dividend policy. C) all clienteles are satisfied. D) dividends remain constant and no special dividends are declared. E) the total amount of the annual dividends is equal to the net income for the year.

Q: Moffatt Construction has paid a quarterly dividend of $1.25 per share for the last three years. Which one of the following is most apt to cause the company to reduce the amount of its next dividend payment? A) Decrease in the next quarter's revenue B) Decrease in the next quarter's net income C) Loss of a major customer which lowers the overall company's outlook for the next few years D) Major lump sum cash outflow next month to start a new project E) Increase in the number of new projects under consideration as compared to prior years

Q: The information content of a dividend increase generally signals that: A) the payer has a one-time surplus of cash. B) the payer has few, if any, net present value projects to pursue. C) management believes earnings growth will be strong going forward. D) the payer has more cash than it needs due to a decline in future orders. E) dividends thereafter will be lower.

Q: An investor is more likely to prefer a high dividend payout if that investor: A) has a high marginal tax rate on dividends. B) is a corporation. C) pays a higher tax rate than the dividend payer. D) does not require additional cash flows. E) pays taxes on dividends but not on capital gains.

Q: Which one of the following factors tends to increase cash dividends? A) Capital gains tax deferment B) Terms contained in bond indentures C) Corporate investors D) Flotation costs E) Homemade dividends

Q: As of 2018, the maximum tax rate any individual would pay on dividend income is: A) 10 percent. B) 5 percent. C) 20 percent. D) 25 percent. E) 21 percent.

Q: The fact that flotation costs can be significant is an argument for: A) issuing larger regular dividends than the industry norm. B) maintaining a constant dividend policy even if the firm frequently has to issue new shares. C) periodic extra dividend payments. D) maintaining a constant dividend policy even when profits decline significantly. E) maintaining a low dividend policy and rarely issuing extra dividends.

Q: Which one of the following favors a low dividend policy? A) The tax on capital gains is deferred until the gain is realized. B) Few, if any, positive net present value projects are available to a firm. C) A majority of the shareholders have a low tax rate. D) A majority of the shareholders have better investment opportunities than the firm. E) The presence of an agency conflict with the company's senior managers.

Q: Which one of the following tends to decrease the ability of a shareholder to create his or her own homemade dividend policy? A) Low taxes on capital gains B) Large holdings of shares C) Dividend reinvestment plans D) Low-cost equity purchases E) High transaction fees

Q: Automatic dividend reinvestment plans: A) require that participating stockholders reinvest all of the dividends to which they are entitled. B) grant all participants a discount on share purchases. C) increase the relevance of corporate dividend policies. D) help shareholders create their own homemade dividend policies. E) are no longer available in the U.S.

Q: Which one of the following statements related to dividend policy is correct? A) The primary question related to dividend policy is whether or not a dividend should ever be paid. B) Both dividends and dividend policy are irrelevant. C) Dividend policy focuses on the timing of dividend payments. D) Homemade dividends increase the importance of a company's dividend policy decisions. E) Whether or not a company ever pays a dividend is irrelevant to equity valuation.