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21.A key assumption of the Miller and Modigliani (MM) dividend

Question : 21.A key assumption of the Miller and Modigliani (MM) dividend : 1409498

 

21.A key assumption of the Miller and Modigliani (MM) dividend irrelevance argument is that: 
 
 

A. future stock prices are certain.

B. firms have an adequate supply of Treasury shares.

C. there exists a risk-free asset.

D. new shares are sold at a fair price.

22.Miller and Modigliani's indifference proposition regarding dividend policy: 
 
 

A. assumes that tax rates increase at the same rate as inflation.

B. assumes that investors can sell their stock at a fair price.

C. states that investors are indifferent between stock dividends and cash dividends.

D. states that investors are indifferent between stock repurchases and cash dividends.

23.The following are indicators that the firm has a cash surplus:

I) Free cash flow is reliably positive.
II) The firm has a low debt ratio compared to similar firms.
III) The firm has sufficient debt capacity to cover unexpected opportunities or setbacks. 
 
 

A. I only

B. II only

C. III only

D. I, II, and III

24.The dividend-irrelevance proposition of Miller and Modigliani depends on the following relationship between investment policy and dividend policy: 
 
 

A. Changes in investment policy will alter dividend policy.

B. Changes in dividend policy will alter investment policy.

C. Investment policy is independent of dividend policy.

D. Dividends are tax-deductible and investments are depreciable.

25.Company X has 100 shares outstanding. It earns $1,000 per year and expects to pay all of it as dividends. If the firm expects to maintain this dividend forever, calculate the stock price today. (The required rate of return is 10%.) 
 
 

A. $110

B. $100

C. $90

D. $10

26.Company X has 100 shares outstanding. It earns $1,000 per year and expects to pay all of it as dividends. If the firm expects to maintain this dividend forever, calculate the stock price after the dividend payment. (The required rate of return is 10%.) 
 
 

A. $110

B. $100

C. $90

D. $10

27.Company X has 100 shares outstanding. It earns $1,000 per year and announces that it will use all $1,000 to repurchase its shares in the open market instead of paying dividends. Calculate the number of shares outstanding at the end of year 1, after the first share repurchase, if the required rate of return is 10%. 
 
 

A. 110.0

B. 100.0

C. 90.91

D. 89.0

28.One possible reason that shareholders often insist on higher dividends is: 
 
 

A. they agree with Miller and Modigliani.

B. the capital gains tax disadvantage.

C. the stock market is efficient.

D. they do not trust managers to spend retained earnings wisely.

29.The rightist position is that the market will reward firms for having: 
 
 

A. a high dividend yield.

B. a low dividend yield

C. good management, regardless of dividend yield.

D. a zero payout policy.

30.According to behavioral finance, investors prefer dividends because: 
 
 

A. investors prefer the discipline that comes from spending only the dividends.

B. dividends generate lower taxes.

C. the stock market is efficient.

D. dividends provide a tax deduction.

 

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