AnswerSheet_Quiz 7_ Capital Structure and Dividend Policy_ BUSI 370 922 2023S1 Business Finance

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Quiz 7: Capital Structure and Dividend Policy Due Jun 25 at 11:59p.m. Points 16 Questions 16 Available until Jun 30 at 11:59p.m. Time Limit None Allowed Attempts 2 Instructions Attempt History Attempt Time Score LATEST Attempt 1 93 minutes 16 out of 16 Answers will be shown after your last attempt Score for this attempt: 16 out of 16 Submitted Jun 24 at 7:41a.m. This attempt took 93 minutes. 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 2 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 Take the Quiz Again 1 / 1 pts Question 1 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:
19.92% 22.08% 23.42% 27.12% 1 / 1 pts Question 2 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: $10,000 $6,000 $4,000 $2,000 1 / 1 pts Question 3 The effect of financial leverage on ROE depends on: the firm's financing strategy. the amount of dividends paid out.
the market value of the debt. none of the above. 1 / 1 pts Question 4 Compared to non-investment grade firms, investment grade firms, in general, do not exhibit: higher coverage ratios. higher cash flow to debt ratios. lower return on assets. higher profit margin. 1 / 1 pts Question 5 Fixed burden coverage ratio measures: 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. 1 / 1 pts Question 6
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The board of directors of a Canadian firm must: 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. 1 / 1 pts Question 7 The pecking order theory of capital structure suggests that firms follow which order when raising capital? 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 1 / 1 pts Question 8 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
III, I, II, IV III, IV, I, II I, III, II, IV IV, I, II, III 1 / 1 pts Question 9 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: February 2, 2015 March 13, 2015 March 16, 2015 April 2, 2015 1 / 1 pts Question 10 Which of the following would result in a decrease in the number of shares outstanding and an increase in the earnings per share? Cash dividend Stock dividend
Reverse stock split None of the above result in a decrease in the number of shares outstanding 1 / 1 pts Question 11 A dividend reinvestment plan (DRIP) differs from a stock dividend in which way? 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. 1 / 1 pts Question 12 A stock dividend differs from a stock split, in that:
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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 1 / 1 pts Question 13 What is the most probable reason for stock splits? 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 1 / 1 pts Question 14 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: 40,000 100,000 250,000 500,000 1 / 1 pts Question 15 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: 100,000; 100,000 90,000; 100,000 100,000; 110,000 110,000; 90,000 1 / 1 pts Question 16 Dividend yields: 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% Quiz Score: 16 out of 16
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