Quiz Ch 14 – Stock Splits and Their Implications
Fundamentals of Financial Management, Concise
Brigham and Houston
09th Edition
Which statement is accurate?
Which statement is accurate?
Which statement is accurate?
True or false: A consequence of the bird-in-the-hand theory of dividends is that if dividend yield decreases, it necessitates a growth increase surpassing the reduction in proportion to maintain a firm’s constant required return, assuming other factors remain unchanged.
True or false: In conceptual terms, a 100% stock dividend and a 2:1 stock split are expected to yield equivalent impacts on the firm’s stock price.
True or false: Investors’ preference for high-payout firms, driven by the perceived dividend certainty over uncertain capital gains, has been challenged by Miller and Modigliani as the “bird-in-the-hand fallacy.” They argue that most dividends are reinvested in stocks, sharing risks with reinvested earnings.
True or false: Miller and Modigliani’s theory of dividend irrelevance posits that the proportion of earnings a company distributes as dividends holds no influence over its cost of capital, yet it does impact its stock price.
True or false: For a retired individual relying on investment income, a preference for high-payout stocks is logical to obtain cash without selling stocks. Conversely, an individual inclined to reinvest dividends might opt for a low-payout company to reduce taxes and brokerage costs.
True or false: A “reverse split” leads to a reduction in the total outstanding shares.
True or false: If a company announces a dividend of $1.50 per share on January 3, with payment set for January 31 to shareholders on record by January 17, then the stock price is expected to decrease by around $1.50 on January 15, the ex-dividend date.
True or false: The dividend irrelevance theory advanced by Miller and Modigliani is predicated on their assertion that the firm’s value is exclusively influenced by its fundamental earnings capability and business risk.