SOLVED

1) How is a dividend is paid out? A) Only in cash. B) In cash and/or common shares. C) In cash and/or preferred shares. D) In cash, common shares and/or preferred shares. E) In cash, common shares and/or other assets. 2) Sunshine Day Care Inc.’s balance sheet indicates that it has current assets of $40,000, Capital Assets net of depreciation of $150,000, current liabilities of $23,000, long-term liabilities of $54,000, paid-in capital of $60,000 worth of common shares and $53,000 in retained earnings. Assuming the book value is a reliable indication of market value of the assets, how much is the maximum dividend that the shareholders can legally vote for themselves? A) $113,000. B) $53,000. C) $190,000. D) $136,000. E) $153,000. 3) What does the term Record Date for dividends refer to? A) The date on which the names of the company owners who will receive dividends appear in the company share register. B) The date when the financial position of the company is assessed to compute the dividend payable. C) The date that the auditors sign their release of the company’s financial statements. D) The date that the company auditors authorize the dividend payout. E) The date on which the quoted share price excludes the accrued dividend. 4) Beryl Corporation has 15 million common shares outstanding trading on October 1 at a cum dividend price of $22.15 a share. Its EPS at that time, the end of the third quarter, is $1.80 per share. If the ex dividend price drops to $21.95 on Oct. 2, what dividend was declared? A) No dividend was necessarily declared. B) $2.7 million C) $3 million D) $27 million E) $30 million 5) Felicity Trust has a dividend cover ratio of 5.0 on net income of $6.3 million. The company’s EPS is $2.10 and its cum dividend price is $22.50. What is the expected ex dividend price of the shares? A) $18.00 B) $20.82 C) $21.24 D) $22.08 E) 27.00 6) If a company has 14 million common and 5 million preferred shares outstanding with dividend per share of $2.8, reported earnings of $70 million and a dividend payout ratio of 25%, what was the dividend paid per share? A) $0.50 B) $1.00 C) $2.50 D) $4.00 E) $5.00 7) After being spun-off by a venture capital company, Web Dynamics Ltd., an e-commerce site design company, has had difficulty finding debt financing due to high rates of its hardware and software obsolescence. How much dividends should Web Dynamics pay out? A) No or low dividends to use the cash for reinvestment in the company. B) High dividends to increase the profile of the company and improve chances for debt financing. C) No or low dividends to increase equity, improving the ROCE ratio and its appeal to lenders. D) Pay high dividends to attract financing through common share issue. E) Pay high dividends to reduce taxes by writing off the cost of dividends against income, thus, freeing up income for reinvestment in the company. 8) ABC is selling for $45.60 and is expected to continue its 5.5% growth rate in dividends. Using the Dividend Growth model, what is its expected dividend if its target return to investors is 18%? A) $2.50 B) $2.96 C) $5.70 D) $8.20 E) $8.66 9) The PetroTracking and Extraction Ltd.’s, a Calgary-based company, is experiencing double-digit growth in earnings. Given that its Board of Directors has adopted a traditional view of dividend policy, what should the company’s dividend policy be? A) Retain its earnings to provide shareholders with immediate capital gains. B) Retain its earnings, to be used for immediate investment, to provide shareholders with greater future earnings. C) Target a 15% dividend payout ratio to balance the conflicting needs of shareholders who want capital gains with those who want immediate income. D) Target a maximum dividend payout to provide shareholders with cash now instead of in the future. E) Decide on dividend levels in each period based primarily on the dividend policies of competing companies. 10) What does the traditional view of dividend policy say about a higher payout ratio? A) It will depress the share value as shareholders must engage in the cost of searching out new investment opportunities. B) It will artificially depress the share value of a company as the growth in dividends will be lower when the absolute amount of dividends is higher. C) It will increase the share value of a company as shareholders will be attracted to the investment flexibility provided by liquidity. D) It will depress the share value of a company as transactions cost must be subtracted from earnings for those shareholders who wish to retain their investment in the company. E) It will increase the share value of a company as the rate of return demanded by investors will drop as the uncertainty of receiving dividends diminishes. 1