Exam (elaborations)
Chapter 13 Payout Policy
- Module
- Managerial Finance
- Institution
- Managerial Finance
Principles of Managerial Finance 8th Edition by Chad J. Zutter-Test Bank
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Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart)Chapter 13 Payout Policy
13.1 The basics of payout policy
1) Payout policy refers to the decisions that firms make about whether to distribute cash to
shareholders, how much cash to distribute, and by what means the cash should be distributed.
Answer: TRUE
Diff: 1
Topic: The Basics of Payout Policy
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Analytical Thinking
2) Rapidly growing firms pay high dividends to shareholders.
Answer: FALSE
Diff: 1
Topic: Elements of Payout Policy
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Analytical Thinking
3) Dividends are the only means by which firms can distribute cash to shareholders.
Answer: FALSE
Diff: 1
Topic: Elements of Payout Policy
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Analytical Thinking
4) Companies can distribute cash to shareholders through dividends or share repurchases, but
they rarely do both.
Answer: FALSE
Diff: 1
Topic: Elements of Payout Policy
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Reflective Thinking
5) Because retained earnings are a form of internal financing, the dividend decision can
significantly affect a firm's external financing requirements.
Answer: TRUE
Diff: 1
Topic: The Mechanics of Payout Policy
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Analytical Thinking
1
Copyright © 2019 Pearson Education, Inc.
,6) In the aggregate, firms distribute far more cash to shareholders by paying dividends than they
do by repurchasing shares.
Answer: FALSE
Diff: 1
Topic: Elements of Payout Policy
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Ethical Understanding and Reasoning
7) In the U.S. over the last 40 years or so, in the aggregate ________.
A) the dollar volume of share repurchases has been growing faster than the volume of dividend
payments
B) the dollar volume of dividend payments has been growing faster than the volume of share
repurchases
C) the dollar volume of dividend payments and share repurchases have been growing at about
the same pace
D) firms have been cutting back on share repurchase activities
Answer: A
Diff: 1
Topic: Elements of Payout Policy
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Reflective Thinking
8) In the aggregate, over time dividend payments tend to fluctuate more than share repurchases.
Answer: FALSE
Diff: 1
Topic: Elements of Payout Policy
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Reflective Thinking
9) In the aggregate and over a long period of time ________.
A) earnings grow faster than dividends
B) earnings and dividends grow at a similar pace
C) earnings grow more slowly than dividends
D) dividend payments exceed earnings
Answer: B
Diff: 1
Topic: Elements of Payout Policy
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Reflective Thinking
2
Copyright © 2019 Pearson Education, Inc.
,10) When firms' earnings fluctuate, they tend to adjust their payout policy by ________.
A) allowing dividends to fluctuate while holding share repurchases relatively steady
B) allowing share repurchases to fluctuate while holding dividends relatively steady
C) adjusted both dividends and share repurchases so the total payout as a percentage of earnings
remains relatively steady
D) stop paying dividends and repurchasing shares
Answer: B
Diff: 1
Topic: Elements of Payout Policy
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Reflective Thinking
11) Over many years, share repurchases have accounted for an increasing percentage of the total
cash paid out by firms to shareholders.
Answer: TRUE
Diff: 1
Topic: Elements of Payout Policy
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Reflective Thinking
12) After a recession when the economy starts to expand again, firms tend to ________.
A) increase share repurchases faster than they increase dividends
B) increase dividends faster than they increase share repurchases
C) increase share repurchases and dividends at a similar rate
D) increase dividends and hold share repurchases constant until they are confident that the
recovery will last for a few years
Answer: A
Diff: 1
Topic: Elements of Payout Policy
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Reflective Thinking
13.2 The mechanics of payout policy
1) Holders of record are stockholders whose names are recorded on the date of record receive the
declared dividend.
Answer: TRUE
Diff: 1
Topic: Cash Dividend Payment Procedures
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Analytical Thinking
3
Copyright © 2019 Pearson Education, Inc.
, 2) Purchasers of a stock selling ex dividend receive the current dividend.
Answer: FALSE
Diff: 1
Topic: Cash Dividend Payment Procedures
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Analytical Thinking
3) The date of record (dividends) is the actual date on which a company will mail the dividend
payment to the holders of record.
Answer: FALSE
Diff: 1
Topic: Cash Dividend Payment Procedures
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Analytical Thinking
4) The dividend payment date is set by a firm's board of directors and represents the actual date
on which the firm mails the dividend payment to the holders of record.
Answer: TRUE
Diff: 1
Topic: Cash Dividend Payment Procedures
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Analytical Thinking
5) The payment date is five days after the date of record, on which the company will mail the
dividend payment to the holders of record.
Answer: FALSE
Diff: 1
Topic: Cash Dividend Payment Procedures
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Analytical Thinking
6) The ex dividend period begins four business days prior to the payment date.
Answer: FALSE
Diff: 1
Topic: Cash Dividend Payment Procedures
Learning Obj.: LG 1
Learning Outcome: F-22
AACSB: Analytical Thinking
4
Copyright © 2019 Pearson Education, Inc.
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