Dividend Policy — Theories and determination. - One Line Questions

1. A company declares a 2-for-1 stock split. If an investor owns 100 shares at $100 per share, after the split, they will own: — 200 shares at $50 per share
2. What is a 'scrip dividend' or 'bond dividend'? — A dividend paid in the form of debt instruments
3. Bonus shares are essentially: — A stock dividend paid out of accumulated profits or reserves
4. The Lintner model describes dividend policy as: — A function of current and past earnings, with a target payout ratio and adjustment speed
5. The Signaling Theory of dividend policy suggests that dividend announcements are interpreted by investors as: — A sign of management's confidence in future earnings
6. Gordon's model for dividend policy implies that the market price of a stock increases with: — An increase in the dividend payout ratio
7. According to the Residual Theory of dividend policy, dividends are paid: — Only after all profitable investment opportunities have been funded
8. Which theory suggests that dividend policy is irrelevant to the firm's value? — Modigliani-Miller Theory
9. A stock dividend involves distributing: — Additional shares of stock to existing shareholders
10. The clientele effect in dividend policy suggests that: — Investors prefer different dividend policies based on their tax brackets and income needs
11. Which of the following is a factor that might lead a company to increase its dividend payout? — Stable or declining earnings with limited growth prospects
12. A company with significant growth opportunities is likely to have a: — Low dividend payout ratio
13. What is the primary implication of the agency cost perspective on dividend policy? — High dividends can reduce free cash flow, thus limiting managerial discretion and potential agency problems.
14. The 'Bird-in-Hand' Theory is criticized for: — Not considering the firm's investment opportunities
15. The dividend irrelevance proposition holds true under the assumption of: — Perfect capital markets with no taxes or transaction costs
16. The agency cost theory suggests that dividend policy can be used to: — Reduce the conflict between shareholders and management
17. The 'clientele effect' suggests that a change in dividend policy might: — Lead to significant short-term stock price volatility
18. Which of the following is a key assumption of the Modigliani-Miller dividend irrelevance theory? — Homogeneous expectations and perfect capital markets
19. The Modigliani-Miller theory, when considering taxes and flotation costs, concludes that dividend policy: — Becomes relevant
20. A company might choose to repurchase shares instead of paying a higher dividend because: — It may be more tax-efficient for shareholders and can increase EPS
21. According to the Modigliani-Miller theory, under perfect capital markets, the value of a firm is determined by: — Its investment decisions
22. A constant payout ratio policy means that the company pays out a fixed percentage of: — Its net income as dividends
23. According to the Signaling Theory, an increase in dividend is often interpreted as: — Management's optimism about future prospects
24. A company's dividend policy is a crucial part of its: — Financial management and corporate finance decisions
25. The Bird-in-Hand Theory of dividend policy advocates for: — Paying higher dividends to reduce uncertainty
26. The residual dividend policy is most consistent with which of the following statements? — Prioritizing profitable investments before distributing earnings.
27. A stable dividend policy aims to provide: — A consistent and predictable stream of dividends
28. Walter's model suggests that if a firm's IRR is greater than its cost of capital, it should: — Retain all earnings for reinvestment
29. Which of the following is NOT a primary determinant of dividend policy? — The company's auditor's favorite color
30. Which of the following is a disadvantage of a high dividend payout ratio? — Less retained earnings for future growth
31. A company that pays dividends consistently, even during periods of low earnings, is likely following a: — Stable dividend policy
32. A firm with a very stable earnings stream and few growth opportunities would most likely adopt a: — High dividend payout policy
33. The concept of 'dividend irrelevance' is most closely associated with which theory? — Modigliani-Miller Theory
34. Which of the following is a legal constraint on dividend payments? — Restrictions in loan covenants
35. The optimal dividend policy, according to some theories, strikes a balance between: — Retained earnings for growth and immediate returns to shareholders
36. Which theory posits that investors prefer current dividends over future capital gains due to lower perceived risk? — Bird-in-Hand Theory
37. Which theory argues that dividend policy matters because it affects the perceived risk of returns to investors? — Bird-in-Hand Theory
38. Which dividend policy is characterized by paying dividends only when the company has surplus funds after meeting all its investment needs? — Residual Dividend Policy
39. A company's ability to pay dividends is primarily limited by its: — Retained earnings and cash flow
40. Which of the following is a type of dividend payout? — Cash dividends
41. Which of the following is a factor influencing dividend policy determination? — The company's dividend payout history
42. What does the term 'ex-dividend date' signify? — The date after which a stock trades without the right to receive the declared dividend
43. If a company's stock price drops significantly on the ex-dividend date, it suggests: — The dividend payment reduces the company's value by the amount of the dividend
44. Walter's model emphasizes the role of the firm's internal rate of return (IRR) and its cost of capital (Ke) in determining: — The optimal dividend payout ratio
45. What is the primary objective of a stock split? — To reduce the market price per share and increase liquidity
46. Which of the following is a reason for a company to repurchase its own shares? — To return excess cash to shareholders and boost earnings per share
47. The dividend payout ratio is calculated as: — Total Dividends / Net Income
48. The Modigliani-Miller theory's assumptions for dividend irrelevance include: — Transaction costs and taxes
49. According to Walter's model, when is the firm's market value maximized? — When the dividend payout ratio equals the internal rate of return
50. Gordon's model (G-model) assumes that the growth rate of dividends is: — Constant and less than the cost of capital
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