MGT 5002 final exam MCQ’S If in the opinion of a given investor a stocks expected return exceeds its required return
MULTIPLE CHOICE CHAPTER 9(9-5) Required return1).If within the opinion of a given investor a shares anticipated return exceeds its required return,this implies that the investor thinksa.b.c.d.e.the inventory is experiencing supernormal progress.the inventory needs to be offered.the inventory is an efficient purchase.administration might be not attempting to maximise the value per share.dividends should not more likely to be declared.(9-1) Preemptive right2).The preemptive proper is necessary to shareholders as a result of ita.b.c.d.e.permits managers to purchase further shares beneath the present market value.will end in increased dividends per share.is included in each company constitution.protects the present shareholders in opposition to a dilution of their possession pursuits.protects bondholders, and thus allows the agency to challenge debt with a comparatively lowinterest price.(9-2) Categorised stock3).Corporations can challenge totally different courses of widespread inventory. Which of the followingstatements regarding inventory courses is CORRECT?a.b.c.d.e.All widespread shares fall into one among three courses: A, B, and C.All widespread shares, no matter class, will need to have the identical voting rights.All corporations have a number of courses of widespread inventory.All widespread inventory, no matter class, should pay the identical dividend.Some class or courses of widespread inventory are entitled to extra votes per share than otherclasses.1Final examination MGT 5002(9-5) Fixed progress model4).If a shares dividend is predicted to develop at a relentless price of 5% a yr, which of thefollowing statements is CORRECT? The inventory is in equilibrium.a.b.c.d.e.The anticipated return on the inventory is 5% a yr.The shares dividend yield is 5%.The worth of the inventory is predicted to say no sooner or later.The shares required return should be equal to or lower than 5%.The shares value one yr from now could be anticipated to be 5% above the present value.(9-7) Company valuation model5).Which of the next statements is CORRECT?a. To implement the company valuation mannequin, we low cost projected free money flows atthe weighted common value of capital.b. To implement the company valuation mannequin, we low cost internet working revenue aftertaxes (NOPAT) on the weighted common value of capital.c. To implement the company valuation mannequin, we low cost projected internet earnings at theweighted common value of capital.d. To implement the company valuation mannequin, we low cost projected free money flows atthe value of fairness capital.e. The company valuation mannequin requires the idea of a relentless progress price in allyears.(9-Eight) Most popular inventory concepts6).Which of the next statements is CORRECT?a. A significant drawback of financing with most well-liked inventory is that most well-liked stockholderstypically have supernormal voting rights.b. Most popular inventory is generally anticipated to supply steadier, extra dependable earnings toinvestors than the identical corporations widespread inventory, and, in consequence, the anticipated after-taxyield on the popular is decrease than the after-tax anticipated return on the commonstock.c. The preemptive proper is a provision in all company charters that provides preferredstockholders the proper to buy (on a professional rata foundation) new problems with most well-liked inventory.d. One of many disadvantages to a company of proudly owning most well-liked inventory is that 70% ofthe dividends acquired signify taxable earnings to the company recipient, whereasinterest earnings earned on bonds could be tax free.e. One of many benefits to financing with most well-liked inventory is that 70% of the dividendspaid out are tax deductible to the issuer.2(9-5) Anticipated complete return7).If D1 = $1.25, g (which is fixed) = 5.5%, and P0 = $44, what's the shares expectedtotal return for the approaching yr?a.b.c.d.e.7.54%7.73%7.93%Eight.13%Eight.34%Chapter 10 - A number of Alternative(10-6) Inside vs. exterior common8).Bankston Company forecasts that if all of its present monetary insurance policies are adopted,its proposed capital finances could be so massive that it must challenge new commonstock. Since new inventory has the next value than retained earnings, Bankston would love toavoid issuing new inventory. Which of the next actions would REDUCE its want toissue new widespread inventory?a.b.c.d.e.Improve the dividend payout ratio for the upcoming yr.Improve the share of debt within the goal capital construction.Improve the proposed capital finances.Cut back the quantity of short-term financial institution debt as a way to improve the present ratio.Cut back the share of debt within the goal capital construction.(10-5) Price of fairness: CAPM9).When working with the CAPM, which of the next components might be decided withthe most precision?a.b.c.d.e.The market threat premium (RPM).The beta coefficient, bi, of a comparatively secure inventory.Essentially the most applicable risk-free price, rRF.The anticipated price of return in the marketplace, rM.The beta coefficient of the market, which is similar because the beta of an averagestock.3Final examination MGT 5002(10-9) Threat and tasks10).LaPango Inc. estimates that its average-risk tasks have a WACC of 10%, its belowaverage threat tasks have a WACC of Eight%, and its above-average threat tasks have aWACC of 12%. Which of the next tasks (A, B, and C) ought to the companyaccept?a.b.c.d.e.Undertaking B, which is of below-average threat and has a return of Eight.5%.Undertaking C, which is of above-average threat and has a return of 11%.Undertaking A, which is of common threat and has a return of 9%.Not one of the tasks needs to be accepted.All the tasks needs to be accepted.(10-5) Price of RE: CAPM11).O'Brien Inc. has the next information: rRF = 5.00%; RPM = 6.00%; and b = 1.05. What isthe agency's value of fairness from retained earnings primarily based on the CAPM?a.b.c.d.e.11.30%11.64%11.99%12.35%12.72%(10-5) Price of RE: CAPM12).Scanlon Inc.'s CFO employed you as a guide to assist her estimate the price of capital. Youhave been supplied with the next information: rRF = Four.10%; RPM = 5.25%; and b = 1.30.Primarily based on the CAPM method, what's the price of fairness from retained earnings?a. 9.67%b. 9.97%c. 10.28%d. 10.60%e. 10.93%Four(10-5) Bond-yield-plus-risk premium13).A. Butcher Timber Firm employed your consulting agency to assist them estimate the fee ofequity. The yield on the agency's bonds is Eight.75%, and your agency's economists imagine thatthe value of fairness might be estimated utilizing a threat premium of three.85% over a agency's personal costof debt. What's an estimate of the agency's value of fairness from retained earnings?a.b.c.d.e.12.60%13.10%13.63%14.17%14.74%(10-7) WACC14).You have been employed as a guide to Giambono Firm, whose goal capital construction is40% debt, 15% most well-liked, and 45% widespread fairness. The after-tax value of debt is 6.00%,the price of most well-liked is 7.50%, and the price of retained earnings is 12.75%. The agency willnot be issuing any new inventory. What's its WACC?a. Eight.98%b. 9.26%c. 9.54%d. 9.83%e. 10.12%(Comp.) Price of capital ideas15).Which of the next statements is CORRECT?a. Since debt capital could cause an organization to go bankrupt however fairness capital can't, debtis riskier than fairness, and thus the after-tax value of debt is at all times better than the costof fairness.b. The tax-adjusted value of debt is at all times better than the rate of interest on debt, providedthe firm does in reality pay taxes.c. If an organization assigns the identical value of capital to all of its tasks no matter eachprojects threat, then the corporate is more likely to reject some secure tasks that it actuallyshould settle for and to just accept some dangerous tasks that it ought to reject.5Final examination MGT 5002d. As a result of no flotation prices are required to acquire capital as retained earnings, the costof retained earnings is mostly decrease than the after-tax value of debt.e. Greater flotation prices have a tendency to scale back the price of fairness capital.(Comp.) Capital elements16).Which of the next statements is CORRECT?a. The part value of most well-liked inventory is expressed as rp(1 - T). This follows becausepreferred inventory dividends are handled as fastened prices, and as such they will bededucted by the issuer for tax functions.b. A value needs to be assigned to retained earnings as a result of alternative value precept,which refers to the truth that the corporations stockholders would themselves anticipate to earn areturn on earnings that have been paid out somewhat than retained and reinvested.c. No value needs to be assigned to retained earnings as a result of the agency doesn't should payanything to boost them. They're generated as money flows by working belongings thatwere raised up to now, therefore they're free.d. Suppose a agency has been dropping cash and thus shouldn't be paying taxes, and this situationis anticipated to persist into the foreseeable future. On this case, the corporations before-taxand after-tax prices of debt for functions of calculating the WACC will each be equal tothe rate of interest on the corporations at present excellent debt, offered that debt wasissued throughout the previous 5 years.e. If a agency has sufficient retained earnings to fund its capital finances for the approaching yr,then there isn't a have to estimate both a value of fairness or a WACC.Chapter 11 - A number of Alternative(11-2) NPV17).Which of the next statements is CORRECT? Assume that the challenge beingconsidered has regular money flows, with one outflow adopted by a collection of inflows.a. A tasks NPV is discovered by compounding the money inflows on the IRR to seek out theterminal worth (TV), then discounting the TV on the WACC.b. The decrease the WACC used to calculate it, the decrease the calculated NPV shall be.c. If a tasks NPV is lower than zero, then its IRR should be lower than the WACC.d. If a tasks NPV is bigger than zero, then its IRR should be lower than zero.e. The NPV of a comparatively low-risk challenge needs to be discovered utilizing a comparatively highWACC.6(11-Three) IRR18).Which of the next statements is CORRECT?a. One defect of the IRR methodology is that it doesn't take account of money flows over aprojects full life.b. One defect of the IRR methodology is that it doesn't take account of the time worth ofmoney.c. One defect of the IRR methodology is that it doesn't take account of the price of capital.d. One defect of the IRR methodology is that it values a greenback acquired at this time the identical as adollar that won't be acquired till someday sooner or later.e. One defect of the IRR methodology is that it assumes that the money flows to be receivedfrom a challenge might be reinvested on the IRR itself, and that assumption is commonly notvalid.(11-Eight) Payback19).e.Which of the next statements is CORRECT? Assume that the challenge beingconsidered has regular money flows, with one outflow adopted by a collection of inflows.a. The longer a tasks payback interval, the extra fascinating the challenge is normallyconsidered to be by this criterion.b. One disadvantage of the payback criterion for evaluating tasks is that this methoddoes not correctly account for the time worth of cash.c. If a tasks payback is optimistic, then the challenge needs to be rejected as a result of it musthave a unfavourable NPV.d. The common payback ignores money flows past the payback interval, however thediscounted payback methodology overcomes this downside.If an organization makes use of the identical payback requirement to judge all tasks, say it requires apayback of Four years or much less, then the corporate will are likely to reject tasks(11-5) NPV and IRR20).Which of the next statements is CORRECT?a. The NPV methodology assumes that money flows shall be reinvested on the WACC, whereas theIRR methodology assumes reinvestment on the IRR.b. The NPV methodology assumes that money flows shall be reinvested on the risk-free price,whereas the IRR methodology assumes reinvestment on the IRR.7Final examination MGT 5002c. The NPV methodology assumes that money flows shall be reinvested on the WACC, whereas theIRR methodology assumes reinvestment on the risk-free price.d. The NPV methodology doesn't take into account all related money flows, notably money flowsbeyond the payback interval.e. The IRR methodology doesn't take into account all related money flows, notably money flowsbeyond the payback interval.(Comp.) Miscellaneous ideas21).Which of the next statements is CORRECT?a. The IRR methodology appeals to some managers as a result of it provides an estimate of the speed ofreturn on tasks somewhat than a greenback quantity, which the NPV methodology supplies.b. The discounted payback methodology eliminates the entire issues related to thepayback methodology.c. When evaluating unbiased tasks, the NPV and IRR strategies usually yieldconflicting outcomes concerning a challenge's acceptability.d. To search out the MIRR, we low cost the TV on the IRR.e. A tasks NPV profile should intersect the X-axis on the tasks WACC.(11-7) NPV profiles22).Which of the next statements is CORRECT? Assume that every one tasks beingconsidered have regular money flows and are equally dangerous.a. If a tasks IRR is the same as its WACC, then, beneath all affordable situations, theprojects NPV should be unfavourable.b. If a tasks IRR is the same as its WACC, then beneath all affordable situations, theprojects IRR should be unfavourable.c. If a tasks IRR is the same as its WACC, then beneath all affordable situations theprojects NPV should be zero.d. There isn't a mandatory relationship between a tasks IRR, its WACC, and its NPV.e. When evaluating mutually unique tasks, these tasks with comparatively lengthy liveswill are likely to have comparatively excessive NPVs when the price of capital is comparatively excessive.Chapter 12 A number of selection(12-1) Sunk prices23).Which of the next statements is CORRECT?a. A sunk value is any value that should be expended as a way to full a challenge and bringit into operation.b. A sunk value is any value that was expended up to now however might be recovered if the firmdecides to not go ahead with the challenge.8c. A sunk value is a value that was incurred and expensed up to now and can't berecovered if the agency decides to not go ahead with the challenge.d. Sunk prices have been previously arduous to take care of, however as soon as the NPV methodology got here into wideuse, it grew to become attainable to easily embrace sunk prices within the money flows and thencalculate the tasks NPV.e. instance of a sunk value is a state of affairs the place Dwelling Depot opens a brand new retailer,and that results in a decline in gross sales of one of many corporations present shops.(12-1) Related money flows24).Which of the next components needs to be included within the money flows used to estimate aprojects NPV?a. All prices related to the challenge which have been incurred previous to the time theanalysis is being performed.b. Curiosity on funds borrowed to assist finance the challenge.c. The top-of-project restoration of any further internet working working capital requiredto function the challenge.d. Cannibalization results, however provided that these results improve the tasks projected cashflows.e. Expenditures up to now on analysis and growth associated to the challenge, providedthose prices have already been expensed for tax functions.(12-1) Incremental money flows25).Which one of many following would NOT end in incremental money flows and thus shouldNOT be included within the capital budgeting evaluation for a brand new product?a. A agency has a parcel of land that can be utilized for a brand new plant website or be offered, rented, orused for agricultural functions.b. A brand new product will generate new gross sales, however a few of these new gross sales shall be fromcustomers who swap from one of many corporations present merchandise.c. A agency should get hold of new gear for the challenge, and $1 million is required forshipping and putting in the brand new equipment.d. A agency has spent $2 million on analysis and growth related to a newproduct. These prices have been expensed for tax functions, they usually can't berecovered no matter whether or not the brand new challenge is accepted or rejected.e. A agency can produce a brand new product, and the existence of that product will stimulatesales of among the corporations different merchandise.(12-Four) Threat evaluation26).Taussig Applied sciences is contemplating two potential tasks, X and Y. In assessing theprojects dangers, the corporate estimated the beta of every challenge versus each the companysother belongings and the inventory market, and it additionally performed thorough situation and simulationanalyses. This analysis produced the next information:9Final examination MGT 5002Undertaking XProject YExpected NPV$350,00Zero$350,000Standard deviation (NPV)$100,00Zero$150,000Project beta (vs. market)1.40.8Correlation of theproject money flows withcash flows from currentlyexisting projectsCash flows are notcorrelated with thecash flows fromexisting projectsCash flows are highlycorrelated with thecash flows fromexisting projectsWhich of the next statements is CORRECT?a.b.c.d.e.Undertaking X has extra stand-alone threat than Undertaking Y.Undertaking X has extra company (or within-firm) threat than Undertaking Y.Undertaking X has extra market threat than Undertaking Y.Undertaking X has the identical degree of company threat as Undertaking Y.Undertaking X has the identical market threat as Undertaking Y since its money flows should not correlatedwith the money flows of present tasks.(12-Four) Undertaking's impact on agency threat27).A agency is contemplating a brand new challenge whose threat is bigger than the danger of the firmsaverage challenge, primarily based on all strategies for assessing threat. In evaluating this challenge, itwould be affordable for administration to do which of the next?a.b.c.d.Improve the estimated IRR of the challenge to replicate its better threat.Improve the estimated NPV of the challenge to replicate its better threat.Reject the challenge, since its acceptance would improve the corporations threat.Ignore the danger differential if the challenge would quantity to solely a small fraction of thefirms complete belongings.e. Improve the price of capital used to judge the challenge to replicate its higher-thanaverage threat.(12-2) Annual CF28).As assistant to the CFO of Boulder Inc., you could estimate the 12 months 1 money circulation for aproject with the next information. What's the 12 months 1 money circulation?Gross sales revenues10$13,000DepreciationOther working costsTax ratea.b.c.d.e.$Four,00Zero$6,00Zero35.Zero%$5,950$6,Zero99$6,251$6,407$6,568Chapter 13 - A number of Alternative(13-5) Flexibility possibility29).Which one of many following is an instance of a flexibility possibility?a. An organization has an choice to spend money on a challenge at this time or to attend for a yr beforemaking the dedication.b. An organization has an possibility to shut down an operation if it seems to be unprofitable.c. An organization agrees to pay extra to construct a plant so as to have the ability to change theplant's inputs and/or outputs at a later date if situations change.d. An organization invests in a challenge at this time to achieve data that will allow it to expandinto totally different markets at a later date.e. An organization invests in a jet plane in order that its CEO, who should journey incessantly, canarrive for distant conferences feeling much less drained than if he needed to fly a industrial airline.(13-6) Threat and challenge choice30).Langston Labs has an general (composite) WACC of 10%, which displays the fee ofcapital for its common asset. Its belongings fluctuate broadly in threat, and Langston evaluates lowrisk tasks with a WACC of Eight%, average-risk tasks at 10%, and high-risk tasks at12%. The corporate is contemplating the next tasks:ProjectABCDERiskHighAverageHighLowLowExpected Return15%12%11%9percent6%11Last examination MGT 5002Which set of tasks would maximize shareholder wealth?a.b.c.d.e.A and B.A, B, and C.A, B, and D.A, B, C, and D.A, B, C, D, and E.(Comp.) Actual choices31).Which one of many following will NOT improve the worth of an actual possibility?a.b.c.d.e.Lengthening the time throughout which an actual possibility should be exercised.A rise within the volatility of the underlying supply of threat.A rise within the risk-free price.A rise in the price of acquiring the actual possibility.A lower within the likelihood competitor will enter the market of the challenge inquestion.(Comp.) Actual choices32).Gleason Analysis often takes actual choices under consideration when evaluating its proposedprojects. Particularly, it considers the choice to desert a challenge at any time when it turns outto be unsuccessful (the abandonment possibility), and it evaluates whether or not it's higher toinvest in a challenge at this time or to attend and acquire extra info (the funding timingoption). Assume the proposed tasks might be deserted at any time with out penalty.Which of the next statements is CORRECT?a. The abandonment possibility tends to scale back a challenge's NPV.b. The abandonment possibility tends to scale back a challenge's threat.c. If there are necessary first-mover benefits, this tends to extend the worth ofwaiting a yr to gather extra info earlier than continuing with a proposed challenge.d. A challenge can both have an abandonment possibility or an funding timing possibility, butnever each.e. Funding timing choices at all times improve the worth of a challenge.(13-2) Development possibility: NPV33).12Tutor.com is contemplating a plan to develop a web based finance tutoring bundle that has thecost and income projections proven beneath. One among Tutor's bigger rivals, OnlineProfessor (OP), is predicted to do one among two issues in 12 months 5: (1) develop its owncompeting program, which is able to put Tutor's program out of enterprise, or (2) supply to buyTutor's program if it decides that this may be cheaper than growing its ownprogram. Tutor thinks there's a 35% likelihood that its program shall be bought for$6 million and a 65% likelihood that it will not be purchased, and thus this system willsimply be closed down with no salvage worth. What's the estimated internet current worth ofthe challenge (in hundreds) at a WACC = 10%, giving consideration to the potential futurepurchase?WACC = 10.0percentOriginal challenge:FutureBuysDoesn't buya.b.c.d.e.Zero-$Three,0001$5002$5003$5004$500Prob.35%65%5$500$6,00Zero$Zero$161.46$179.40$199.33$219.26$241.19Chapter 14 - A number of Alternative(14-2) Enterprise threat34).A rise within the debt ratio will typically haven't any impact on which of this stuff?a.b.c.d.e.Enterprise threat.Whole threat.Monetary threat.Market threat.The agency's beta.(14-Three) Optimum capital construction35).Primarily based on the data beneath, what's the agency's optimum capital construction?a.b.c.d.e.Debt = 40%; Fairness = 60%; EPS = $2.95; Inventory value = $26.50.Debt = 50%; Fairness = 50%; EPS = $Three.05; Inventory value = $28.90.Debt = 60%; Fairness = 40%; EPS = $Three.18; Inventory value = $31.20.Debt = 80%; Fairness = 20%; EPS = $Three.42; Inventory value = $30.40.Debt = 70%; Fairness = 30%; EPS = $Three.31; Inventory value = $30.00.(14-5) Leverage and cap. struct.13Last examination MGT 500236).Which of the next occasions is more likely to encourage an organization to boost its goal debtratio, different issues held fixed?a.b.c.d.e.A rise within the company tax price.A rise within the private tax price.A rise within the companys working leverage.The Federal Reserve tightens rates of interest in an effort to struggle inflation.The corporate's inventory value hits a brand new excessive.(14-Three) Goal capital construction37).The corporations goal capital construction ought to do which of the next?a.b.c.d.e.Maximize the earnings per share (EPS).Reduce the price of debt (rd).Acquire the very best attainable bond score.Reduce the price of fairness (rs).Reduce the weighted common value of capital (WACC).(14-5) Leverage and cap. struct.38).Which of the next statements is CORRECT, holding different issues fixed?a. Corporations whose belongings are comparatively liquid are likely to have comparatively low chapter prices,therefore they have a tendency to make use of comparatively little debt.b. A rise within the private tax price is more likely to improve the debt ratio of the averagecorporation.c. If modifications within the chapter code make chapter less expensive to firms, thenthis would probably result in decrease debt ratios for firms.d. A rise within the companys diploma of working leverage would are likely to encouragethe agency to make use of extra debt in its capital construction in order to maintain its complete threat unchanged.e. A rise within the company tax price would in concept encourage firms to usemore debt of their capital constructions.(14-2) Capital struct. ideas39).Which of the next statements is CORRECT?a. Basically, a agency with low working leverage additionally has a small proportion of its totalcosts within the type of fastened prices.b. There isn't a cause to suppose that modifications within the private tax price would have an effect on firmscapital construction choices.c. A agency with a comparatively excessive enterprise threat is extra more likely to improve its use offinancial leverage than a agency with low enterprise threat, assuming all else equal.14d. If a agency's after-tax value of fairness exceeds its after-tax value of debt, it could possibly alwaysreduce its WACC by growing its use of debt.e. Suppose a agency has lower than its optimum quantity of debt. Growing its use of debt tothe level the place it's at its optimum capital construction will lower the prices of each debtand fairness.(14-2) Break-even evaluation40).Longstreet Inc. has fastened working prices of $470,00Zero, variable prices of $2.80 per unitproduced, and its product sells for $Four.00 per unit. What's the firm's break-evenpoint, i.e., at what unit gross sales quantity would earnings equal prices?a.b.c.d.e.391,667411,250431,813453,403476,Zero73(14-2) Break-even evaluation41).Southwest U's campus guide retailer sells course packs for $15 every, the variable value perpack is $9, fastened prices to provide the packs are $200,00Zero, and anticipated annual gross sales are50,00Zero packs. What are the pre-tax earnings from gross sales in fact packs?a.b.c.d.e.$ 72,900$ 81,00Zero$ 90,00Zero$100,00Zero$110,00Zero(14-2) Break-even evaluation42).Your uncle is contemplating investing in a brand new firm that may produce excessive qualitystereo audio system. The gross sales value could be set at 1.5 instances the variable value per unit; thevariable value per unit is estimated to be $75.00; and glued prices are estimated at$1,200,00Zero. What gross sales quantity could be required to interrupt even, i.e., to have EBIT =zero?a. 28,880b. 30,40015Last examination MGT 5002c. 32,000d. 33,600e. 35,280Chapter 15 - A number of Alternative(15-Three) Dividend payout43).In the actual world, dividendsa.b.c.d.are often extra secure than earnings.fluctuate extra broadly than earnings.are typically a decrease share of earnings for mature corporations.are often modified yearly to replicate earnings modifications, and these modifications arerandomly increased to decrease, relying on whether or not earnings elevated or decreased.e. are often set as a hard and fast share of earnings, e.g., at 40% of earnings, so if EPS =$2.00, then DPS would equal $Zero.80. As soon as the share is ready, then dividend policyis on computerized pilot and the dividend truly paid relies upon strictly on earnings.(15-6) Inventory break up44).You personal 100 shares of Troll Brothers' inventory, which at present sells for $120 a share. Thecompany is about to declare a 2-for-1 inventory break up. Which of the next greatest describesyour probably place after the break up?a.b.c.d.e.You'll have 200 shares of inventory, and the inventory will commerce at or close to $120 a share.You'll have 200 shares of inventory, and the inventory will commerce at or close to $60 a share.You'll have 100 shares of inventory, and the inventory will commerce at or close to $60 a share.You'll have 50 shares of inventory, and the inventory will commerce at or close to $120 a share.You'll have 50 shares of inventory, and the inventory will commerce at or close to $600 a share.(15-1) Buyers' div. preferences45).Myron Gordon and John Lintner imagine that the required return on fairness will increase asthe dividend payout ratio is lowered. Their argument is predicated on the idea thata.b.c.d.16buyers are detached between dividends and capital positive aspects.buyers require that the dividend yield plus the capital positive aspects yield equal a relentless.capital positive aspects are taxed at the next price than dividends.buyers view dividends as being much less dangerous than potential future capital positive aspects.e. buyers want a greenback of anticipated capital positive aspects to a greenback of anticipated dividendsbecause of the decrease tax price on capital positive aspects.(15-5) Elements in div. coverage46).Which of the next could be almost definitely to result in a lower in a agency's dividendpayout ratio?a. Its earnings change into extra secure.b. Its entry to the capital markets will increase.c. Its analysis and growth efforts repay, and it now has extra high-returninvestment alternatives.d. Its accounts receivable lower on account of a change in its credit score coverage.e. Its inventory value has elevated over the past yr by a better share than theincrease within the broad inventory market averages.(Comp.) Dividend theories47).Which of the next statements about dividend insurance policies is CORRECT?a. Miller and Modigliani argued that buyers want dividends to capital positive aspects becausedividends are extra sure than capital positive aspects. They name this the bird-in-the-handeffect.b. One cause that firms are likely to favor distributing extra money as dividends ratherthan by repurchasing inventory is that dividends are usually taxed at a decrease price thangains on repurchased inventory.c. One benefit of dividend reinvestment plans is that they permit shareholders to delaypaying taxes on the dividends that they select to reinvest.d. One key benefit of the residual dividend mannequin is that it allows an organization tofollow a secure dividend coverage.e. The clientele impact means that firms ought to observe a secure dividend coverage.(Comp.) Repurchases and DRIPS48).Which of the next statements is CORRECT?a. One drawback of dividend reinvestment plans is that they improve transactionscosts for buyers who need to improve their funding within the firm.17Last examination MGT 5002b. One benefit of dividend reinvestment plans is that they allow buyers topostpone paying taxes on the dividends credited to their account.c. Inventory repurchases can be utilized by a agency that desires to extend its debt ratio.d. Inventory repurchases make sense if an organization expects to have plenty of worthwhile newprojects to fund over the following few years, offered buyers are conscious of theseinvestment alternatives.e. One benefit of an open market dividend reinvestment plan is that it supplies newequity capital and will increase the shares excellent.(Comp.) Div. coverage and repurchases49).Which of the next statements is CORRECT?a. Traditionally, the tax code has inspired firms to pay dividends somewhat thanretain earnings.b. If an organization makes use of the residual dividend mannequin to find out its dividend funds,dividend payout will have a tendency to extend at any time when its worthwhile funding opportunitiesincrease comparatively quickly.c. The extra a agency's administration believes within the clientele impact, the extra probably thefirm is to stick strictly to the residual dividend mannequin.d. Giant inventory repurchases financed by debt have a tendency to extend anticipated earnings pershare, however in addition they have a tendency to extend the agency's monetary threat.e. A greenback paid out to repurchase inventory has the identical tax profit as a greenback paid out individends. Thus, each firms and buyers needs to be detached betweendistributing money by dividends and inventory repurchase packages.(15-6) Inventory break up50).Mid-State BankCorp lately declared a 7-for-2 inventory break up. Previous to the break up, the stocksold for $80 per share. If the agency's complete market worth is unchanged by the break up, whatwill the inventory value be following the break up?a.b.c.d.e.18$20.63$21.71$22.86$24.00$25.20