The dividend policy must be formulated considering two basic objectives, namely ________. A) delaying the tax liability of the stockholder and information content B) maximizing shareholder wealth and maintaining liquidity C) maximizing shareholder wealth and providing for sufficient financing D) maintaining liquidity and minimizing the weighted average cost of capital ANSWER C
Which type of dividend payment policy has the disadvantage that if a firm’s earnings drop or if a loss occurs in a given period, dividends may be low or nonexistent? A) constant-payout-ratio policy B) regular dividend policy C) low-regular-and-extra dividend policy D) stock dividend policy ANSWER A
The asset turnover measure indicates how much effective resource management contributed to the firm’s ROE. Indicate whether the statement is true or false ANSWER TRUE
If interest rates rise, the price of preferred shares will also rise, other things equal. Indicate whether the statement is true or false ANSWER FALSE
The ________ rule states that a firm should accept any project with a present value of cash inflows greater than the present value of cash outflows. A) internal rate of return B) payback C) modified internal rate of return D) net present value ANSWER D
If a firm reports $25 million of retained earnings on its balance sheet, could the board of directors declare a $25 million cash dividend without any concerns? Explain why or why not What will be an ideal response? ANSWER The retained earnings on a firm’s balance sheet represents the accumulation of net income […]
The decision rule for net present value declares that a project is acceptable if: A) it pays back within a specified time period. B) the rate of return is greater than the firm’s cost of capital. C) the present value of the cash inflows exceeds the initial cash outflow. D) all of the statements above […]
Because a firm’s performance measures reflect past performance, these measures can NOT be used to assist in forecasting future financial statements. Indicate whether the statement is true or false ANSWER FALSE
The ________ method of capital budgeting provides an answer in dollar terms whereas the ________ method provides answers in percentage terms. A) IRR; payback B) NPV; payback C) MIRR; IRR D) NPV; IRR ANSWER D
________ on preferred shares are paid ________ taxes and ________ common share dividends. A) Interest payments; before; after B) Dividends; before; after C) Dividends; after; before D) Interest payments; after; after ANSWER C
