Question 1

A dividend ___________ is a class of investors who have a particular preference towards a certain dividend policy.

Accepted Answer

The answer of A dividend ___________ is a class of...

Question 2

Miller and Modigliani hypothesised that dividend policy has a significant impact on shareholder wealth,as it involves a trade-off between higher or lower dividends and issuing or repurchasing ordinary shares.

Accepted Answer

Miller and Modigliani's dividend irrelevance theory posits that in a perfect market, the dividend policy of a company does not affect its market value or shareholders' wealth. Their theory suggests that the value of a firm is determined by its earning power and investment policy, not by how earnings are distributed between dividends and retained earnings.

Question 3

Share buybacks are a means by which a company can improve its performance measures,particularly earnings per share and net assets per share.

Accepted Answer

Share buybacks reduce the number of outstanding shares, which increases the earnings per share and net assets per share.

Question 4

Dividends reduce agency costs by providing an internal source of financing and increasing free cash flows.

Accepted Answer

Dividends actually reduce a company's free cash flows because they are cash outflows to shareholders, and they do not provide an internal source of financing; instead, they distribute profits back to shareholders.

Question 5

Kangaroo Ltd had a closing share price of $15 the day before shares in the company began trading on an ex-dividend basis.The dividend is 60 cents per share,fully franked at the company tax rate of 30 per cent.Assuming franking credits are fully valued,the expected ex-dividend share price is $14.14.

Accepted Answer

The ex-dividend share price can be calculated as follows: 
Ex-dividend share price = (Closing share price - Dividend) + (Franking credit * (1 - Company tax rate))/Total number of shares
= ($15 - $0.60) + ($0.60 * (1 - 0.3))/1
= $14.14
Therefore, the expected ex-dividend share price is $14.14, as stated in the question, making the answer A.

Question 6

Which of the following statements is true?

Accepted Answer

The statement "Announcements of dividend reinvestment plans, after the introduction of imputation, were associated with a significantly positive market response" is true according to the information given in the question. The other statements are not confirmed by the information provided.

Question 7

Dividends may provide a credible _________ about a company's quality because the payment of dividends is evidence that the company generates sufficient cash flows,as well as providing information on management's future expectations.

Accepted Answer

The answer of Dividends may provide a credible _________ about...

Question 8

A __________________________ is an arrangement made by a company which gives shareholders the option of receiving their dividends in one or more forms.

Accepted Answer

The answer of A __________________________ is an arrangement made by...

Question 9

A share buyback:

Accepted Answer

The answer of A share buyback:
...

Question 10

A key limitation of Miller and Modigliani's theory of dividend irrelevance is that they assume there is a perfect capital market with no ___________.

Accepted Answer

The answer of A key limitation of Miller and Modigliani's...

Question 11

Dividend reinvestment schemes are a form of payout policy that can satisfy the desire of resident investors for the payment of the maximum possible franked dividends,while ensuring the company does not run short of cash to finance new investments.

Accepted Answer

Dividend reinvestment schemes allow shareholders to automatically reinvest their dividends back into the company's stock, increasing their ownership in the company without receiving cash payouts. By doing so, resident investors can receive the benefit of franking credits on the maximum possible amount of dividends, while allowing the company to retain cash for future investments.

Question 12

A __________ share buyback is a type of buyback where offers are made to only some of the shareholders in a company.

Accepted Answer

The answer of A __________ share buyback is a type...

Question 13

Under the imputation tax system,dividends are only taxed once at the company tax rate.

Accepted Answer

Under the imputation tax system, dividends are taxed at the company level, but shareholders receive a credit for the tax paid by the company, which can offset their personal tax liability. This means dividends are effectively taxed at the shareholder's tax rate, not just the company tax rate.

Quiz 11: Payout Policy