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Chapter 17. Dividend Theories and Policy > Objective-type Questions

OBJECTIVE-TYPE QUESTIONS
  1. Mark true or false.
    1. Shareholders prefer cash dividend when tax rate on dividend is greater than tax rate on capital gains.
    2. Transaction cost involved in the sale of shares motivates shareholders to get cash dividend.
    3. According to Walter, retention of earnings helps increase share prices only when return from investment is greater than capitalisation rate.
    4. Lower-income shareholders normally prefer retention of earnings in order to meet their consumption budget.
    5. Stable dividend does not mean a fixed dividend pay-out ratio.
    6. Reverse split means breaking the share into two or more parts.
    7. Bonus shares are issued when cash has to be conserved in the enterprise.
  2. Choose the most suitable answer.
    1. M-M theory in perfect market suggests that dividend payment:
      1. has a positive impact on the value of a firm
      2. has a negative impact on the value of a firm
      3. as no impact on the value of a firm
    2. The residual theory of dividend is applicable only when:
      1. the cost of retained earning is lower than the cost of debt
      2. the cost of retained earning is greater than the cost of debt
      3. the cost of retained earning is equal to the cost of debt
    3. Stable dividend means:
      1. constant dividend per share
      2. constant dividend pay-out ratio
      3. both of the above
    4. Bonus shares are issued in India:
      1. as a substitute for cash dividend
      2. to supplement cash dividend
      3. both of the above
    5. According to Gordon, the value of a share changes with:
      1. changes in retention/dividend ratio
      2. even in the stability of retention/dividend ratio
      3. both of the above

  

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