31) Share prices of Emperor Oil Ltd. have been stagnant for the past five years at around $50.00. The company is in the final stretch of drilling and testing old oil fields located in northern Ontario using the latest tracking technology. Management is expects excellent results within six months but so far the market is unaware of these developments. Which of the following activities would be inequitable to current shareholders? A) A 10% increase in the dividend. B) A 10% share repurchase program. C) A 10% stock dividend program. D) A 1 for 10 stock split program. E) A 10% dividend smoothing program. 32) To receive the current quarterly dividend, when must an investor buy shares in a company? A) Before the record date. B) Before the ex-dividend date. C) Before the cum-dividend date. D) Before the transaction date. E) Before the settlement date. 33) The embattled management team at Ram Inc. has promised a new low power consumption core microprocessor incorporating graphics capability for the past two years. The share price has declined from $25 to $17 in the same period even though earning have stayed the same. How might management convey success is at hand in a way that is believable to the market: A) Call a press conference to announce success. B) Announce that agency costs have been reduced. C) Raise the dividend significantly. D) Inform shareholders about information asymmetry. E) Institute a share repurchase program. 34) At REL Ltd., earnings per share over a five year period were (from earliest to latest) $2.00, $0.50, $1.20, $2.40, $1.75. In the same period, dividends per share were $0.50, $0,50, $0,50, $0.75, $0.75. What best describes this result? A) Stock dividends. B) Share repurchases. C) dividend signalling. D) Dividend smoothing. E) Residual dividends. 35) At a time when the corporate tax rate is 22%, the government has raised taxes on individuals to 43% to meet its fiscal needs. The dividend tax rate is 32%. Interest rates are 8%. Which of the following applies to LED Ltd.’s dividend policy? A) Shareholders would be better off by $31.08 per $1,000 of dividends if LED paid the dividend now and the investor invested the money. B) Shareholders would be better off by $62.40 per $1,000 of dividends if LED paid the dividend now and the investor invested the money. C) Shareholders would be indifferent as to whether LED deferred the dividend for 1 year and invested the money itself. D) Shareholders would be better off by $20.67 per $1,000 of dividends if LED deferred the dividend for 1 year and invested the money itself. E) Shareholders would be better off by $11.42 per $1,000 of dividends if LED deferred the dividend for 1 year and invested the money itself. 36) Peanut Ltd. is in a takeover battle to acquire Oil Distributing. The new firm would be known as Peanut Oil Inc. if the takeover obtains shareholder approval. Peanut has argued in the press that Oil is not maximizing shareholder return because it pays no dividends. How should this argument be received by Oil investors? A) It will be dismissed by sophisticated investors who realize the dividend represents only part of a shareholder’s total return. B) It will be accepted by sophisticated investors because the lack of dividend represents management’s lack of confidence in the future. C) It will be dismissed by novice investors who are mainly looking for a capital gain. D) It will be accepted by novice investors because the lack of dividend signals a reduction in agency costs. E) It will be accepted by the financial media because the lack of dividend signals poor management. 37) The management team of SoftWare Dreamworks Ltd. owns 35% of the outstanding shares of the company. the remainder are widely held by North American investors, with no on else owning more than 2% of the shares. However management is concerned about retaining control because there has been much takeover activity in the software industry recently. The firm’s debt-Equity ratio sits at 60%. The current dividend payout ratio is 5%. How should management plan to obtain new funds for expansion into 4D research and development? A) Issue new common shares. B) Sell new bonds. C) Issue new preferred shares. D) Borrow long term from a bank. E) Keep a high profit retention policy. 38) The dividend cover ratio at Effortless Beauty has been 1.2, 1.1, 1.0, 0.9 starting from four years ago until now. Which of the following is most likely? A) Dividend smoothing will occur. B) The share price will fall. C) The profit stability will decline. D) The dividend will be cut. E) The market exceptions will drop. 39) Which of the following is the most important factor influencing the level of dividends? A) Investment opportunities. B) Residual theory of dividends. C) Loan covenants. D) Market expectations. E) Profit stability. 40) Which of the following represents a legal restriction on the payment of dividends? A) The dividend must be paid prior to the ex-dividend date. B) The total dividend cannot exceed shareholders’ equity. C) A loan covenant which restricts the dividend to 10% of net income. D) A stock dividend is restricted to Canadian shareholders.