Quiz_ Quiz 7_ Capital Structure and Dividend Policy
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Quiz: Quiz 7: Capital Structure and Dividend Policy
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Quiz 7: Capital Structure and Dividend Policy
Started: Mar 31 at 7:25a.m.
Quiz Instructions
For this Quiz answer the questions using an excel document or financial calculator. (
I recommend you use a spreadsheet for your calculations. You will be allowed
to use either a calculator or spreadsheet to solve similar problems on the mid term and final exams
).
You have 3 attempts on this quiz, highest score counts. There is no time limit. The correct answers will be available the next day.
Your answers should be accurate to the nearest cent (unless advised otherwise) for all monetary amounts and to 4 decimal places (set your calculator to six decimal
places) for all other answers (unless advised otherwise). Do NOT use unit symbols ($,%), spaces or commas in your fill in the blank answers
. It is highly recommended
that you document (write or type) your answers to the question showing the equations used and the calculator steps followed in a separate document. This will allow you
to check your work against the assignment answers in Canvas and assist you in future studying for the midterm and final exams. For complex problems, it is also useful
to draw a timeline to modeling the cash flows.
1 pts
Question 1
19.92%
22.08%
23.42%
27.12%
In 2015, Toronto Skaters earned a return on investment (ROI) of 15% and had a cost of debt of 7 percent. The book value of debt was $25,000 and
the book value of shareholders’ equity was $30,000. The firm faces a tax rate of 30 percent. The firm’s return on equity is:
1 pts
Question 2
$10,000
$6,000
$4,000
$2,000
Determine the EPS indifference EBIT level for Poutine Company for the following two scenarios: A debt/equity ratio of .6, pre-tax cost of debt is 8
percent, annual interest payments are $2,000, and the company has 1,000 shares outstanding. In scenario 2, the firm is all equity financed and has
1,500 shares outstanding. The tax rate is 40 percent for both scenarios. The EPS indifference EBIT level for Poutine Company is:
1 pts
Question 3
the firm's financing strategy.
the amount of dividends paid out.
the market value of the debt.
none of the above.
The effect of financial leverage on ROE depends on:
1 pts
Question 4
higher coverage ratios.
higher cash flow to debt ratios.
lower return on assets.
higher profit margin.
Compared to non-investment grade firms, investment grade firms, in general, do not exhibit:
01/04/2023, 22:16
Quiz: Quiz 7: Capital Structure and Dividend Policy
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1 pts
Question 5
the coverage of expenses associated with debt with operating income.
the return on investment capital.
the magnitude of historical capital expenditure over the years.
none of the above.
Fixed burden coverage ratio measures:
1 pts
Question 6
act in the best interests of the company.
always act in the best interests of the shareholders.
always act in the best interests of all stakeholders including creditors.
act in the best interests of the managers of the firm.
The board of directors of a Canadian firm must:
1 pts
Question 7
Internal cash flow, issue debt, issue equity
Internal cash flow, issue equity, issue debt
Issue debt, internal cash flow, issue equity
Issue debt, issue equity, internal cash flow
The pecking order theory of capital structure suggests that firms follow which order when raising capital?
1 pts
Question 8
III, I, II, IV
III, IV, I, II
I, III, II, IV
IV, I, II, III
Place the following dates in chronological order from the earliest to the latest:
I. Holder of record date
II. Payment date
III. Declaration date
IV. Ex-dividend date
1 pts
Question 9
February 2, 2015
March 13, 2015
On January 1, 2015, you purchased 100 shares of Toronto Skaters Company. On February 1, 2015, the company declared a dividend of $2 per share
for shareholders of record on March 15, 2015, payable on April 1, 2015. Assume the ex-dividend date is March 13, 2015. If you wished to receive the
dividend, you cannot sell your shares before:
01/04/2023, 22:16
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March 16, 2015
April 2, 2015
1 pts
Question 10
Cash dividend
Stock dividend
Reverse stock split
None of the above result in a decrease in the number of shares outstanding
Which of the following would result in a decrease in the number of shares outstanding and an increase in the earnings per share?
1 pts
Question 11
DRIPs allow investors to use dividends to buy new shares, while a stock dividend is a dividend paid in additional shares.
Stock dividends allow shareholders to purchase additional shares with their dividends at a special discount, whereas a DRIP allows shareholders to purchase shares
at the market price.
DRIPs allow shareholders to buy additional shares at a discount, whereas with a stock dividend shareholders receive no discount.
Stock dividends are voluntary whereas DRIPs are mandatory.
A dividend reinvestment plan (DRIP) differs from a stock dividend in which way?
1 pts
Question 12
The amount of a stock dividend is fully taxable, whereas there is no tax implication with a stock split.
Stock dividends increase the number shares greater than 25 percent, whereas stock splits increase shares by less than 25 percent
Stock splits always increase the average share price whereas for stock dividends the price would remain the same
Stock splits have an impact on retained earnings, whereas stock dividends have no impact
A stock dividend differs from a stock split, in that:
1 pts
Question 13
The economic benefit for the firm
The increase in the number of shares where the price stays the same
Trading price at an acceptable level for small investors
Trading price at the penny stock level
What is the most probable reason for stock splits?
1 pts
Question 14
40,000
100,000
250,000
Toronto Skaters Company currently has 100,000 shares outstanding. It has just declared a 5 for 2 stock split. After the split, the number of shares
outstanding will be:
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500,000
1 pts
Question 15
100,000; 100,000
90,000; 100,000
100,000; 110,000
110,000; 90,000
Saguenay Resort Inc. and Gaspésie Spa Inc. both have 100,000 shares outstanding and both stocks trade for $10 per share. Saguenay Resort Inc.
pays a dividend of $1 per share while Gaspésie Spa Inc. pays a 10% stock dividend. After the dividends are paid, the number of shares outstanding
for Saguenay Resort Inc. and Gaspésie Spa Inc., respectively, are:
1 pts
Question 16
Increase when share prices increase and dividends remain stable
Are similar among Canadian firms
Increase when dividends increase and share prices remain stable
Are always greater than 5%
Dividend yields:
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