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1Copyright©2014PearsonEducation,Inc.CorporateFinance,3e(Berk/DeMarzo)Chapter17PayoutPolicy17.1DistributionstoShareholders1)Thedateonwhichtheboardauthorizesthedividendisthe:A)declarationdate.B)distributiondate.C)recorddate.D)ex-dividenddate.Answer:ADiff:1Section:17.1DistributionstoShareholdersSkill:Definition2)Thefirmwillpaythedividendtoallshareholderswhoareregisteredownersonaspecificdate,setbytheboard,calledthe:A)declarationdate.B)recorddate.C)distributiondate.D)ex-dividenddate.Answer:BDiff:1Section:17.1DistributionstoShareholdersSkill:Definition3)Anyonewhopurchasesthestockonorafterthe________datewillnotreceivethedividend.A)distributionB)recordC)ex-dividendD)declarationAnswer:CDiff:1Section:17.1DistributionstoShareholdersSkill:Definition4)Thefirmmailsdividendcheckstotheregisteredshareholdersonthe:A)ex-dividenddate.B)declarationdate.C)distributiondate.D)recorddate.Answer:CDiff:1Section:17.1DistributionstoShareholdersSkill:Definition2Copyright©2014PearsonEducation,Inc.5)WhichofthefollowingstatementsisFALSE?A)Fromanaccountingperspective,dividendsgenerallyreducethefirm’scurrent(oraccumulated)retainedearnings.B)Thewayafirmchoosesbetweenpayingdividendsandretainingearningsisreferredtoasitspayoutpolicy.C)Mostcompaniesthatpaydividendspaythemsemiannually.D)Occasionally,afirmmaypayaone-time,specialdividendthatisusuallymuchlargerthanaregulardividend.Answer:CDiff:2Section:17.1DistributionstoShareholdersSkill:Conceptual6)Afirmcanrepurchasesharesthrougha(n)________inwhichitofferstobuysharesataprespecifiedpriceduringashorttimeperiod—generallywithin20days.A)tenderofferB)openmarketsharerepurchasesC)targetedrepurchaseD)DutchauctionsharerepurchaseAnswer:ADiff:2Section:17.1DistributionstoShareholdersSkill:Definition7)Anothertomethodtorepurchasesharesisthe________,inwhichthefirmlistsdifferentpricesatwhichitispreparedtobuyshares,andshareholdersinturnindicatehowmanysharestheyarewillingtosellateachprice.A)tenderofferB)DutchauctionsharerepurchaseC)targetedrepurchaseD)openmarketsharerepurchasesAnswer:BDiff:2Section:17.1DistributionstoShareholdersSkill:Definition8)A(n)________mayoccurifamajorshareholderdesirestosellalargenumberofsharesbutthemarketforthesharesisnotsufficientlyliquidtosustainsuchalargesalewithoutseverelyaffectingtheprice.A)openmarketsharerepurchasesB)DutchauctionsharerepurchaseC)tenderofferD)targetedrepurchaseAnswer:DDiff:2Section:17.1DistributionstoShareholdersSkill:Definition3Copyright©2014PearsonEducation,Inc.9)A(n)________isthemostcommonwaythatfirmsrepurchaseshares.A)targetedrepurchaseB)DutchauctionsharerepurchaseC)tenderofferD)openmarketsharerepurchasesAnswer:DDiff:2Section:17.1DistributionstoShareholdersSkill:Definition17.2ComparisonofDividendsandShareRepurchases1)TaggartTranscontinentalhasannounceda$2dividend.IfTaggart'slastpricecum-dividendis$45,then,assumingperfectcapitalmarkets,whatshoulditsfirstex-dividendpricebe?A)$0B)$2C)$43D)$45Answer:CExplanation:C)Pexdividend=Pcumdividend-dividend=$45-$2=$43Diff:1Section:17.2ComparisonofDividendsandShareRepurchasesSkill:AnalyticalUsethefollowinginformationtoanswerthequestion(s)below.WyattOilhasassetswithamarketvalueof$600million,$70millionofwhicharecash.Ithasdebtof$250million,and20millionsharesoutstanding.Assumeperfectcapitalmarkets.2)WyattOil'scurrentstockpriceisclosestto:A)$11.00B)$12.50C)$14.00D)$17.50Answer:DExplanation:D)price===$17.50Diff:1Section:17.2ComparisonofDividendsandShareRepurchasesSkill:Analytical4Copyright©2014PearsonEducation,Inc.3)IfWyattOildistributesthe$70millionasadividend,thenitsstockpriceafterthedividendwillbeclosestto:A)$12.50B)$14.00C)$17.50D)$26.50Answer:BExplanation:B)price===$14.00Diff:2Section:17.2ComparisonofDividendsandShareRepurchasesSkill:Analytical4)IfWyattOildistributesthe$70millionasasharerepurchase,thenitsstockpriceafterthesharerepurchasewillbeclosestto:A)$11.00B)$12.50C)$14.00D)$17.50Answer:DExplanation:D)currentprice===$17.50ThereforeWyattOilwillrepurchase$70million/$17.50=4millionshares,leaving20-4=16millionsharesoutstanding.Thereforeaftertherepurchaseprice===$17.50Diff:2Section:17.2ComparisonofDividendsandShareRepurchasesSkill:Analytical5)IfWyattOildistributesthe$70millionasasharerepurchase,thenthenumberofsharesoutstandingaftertherepurchasewillbeclosestto:A)16.0millionB)16.5millionC)17.5millionD)18.0millionAnswer:AExplanation:A)currentprice===$17.50ThereforeWyattOilwillrepurchase$70million/$17.50=4millionshares,leaving20-4=16millionsharesoutstandingDiff:2Section:17.2ComparisonofDividendsandShareRepurchasesSkill:Analytical5Copyright©2014PearsonEducation,Inc.6)IfWyattOildistributesthe$70millionasadividend,thenitsdebt-to-equityratioafterthedividendwillbeclosestto:A)0.7B)0.9C)1.0D)1.1Answer:BExplanation:B)equity=assets-debt,afterthedistribution,assets=600-70=530,soequity=530-250=$280million,sothedebttoequityratio=$250/$280=0.892857Diff:1Section:17.2ComparisonofDividendsandShareRepurchasesSkill:Analytical7)IfWyattOildistributesthe$70millionasasharerepurchase,thenitsdebt-to-equityratioafterthesharerepurchasewillbeclosestto:A)0.9B)1.0C)