QUESTION: 29

An investor concerned about taxes on dividend distributions will MOST LIKELY purchase stock on which of the following dates?

Ex-dividend date
Record date
Declaration date
Payment date

Answer(s): A

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A large mature company with limited growth opportunities (positive NPV projects) achieved abnormally high profits this year. After paying mandatory principal, interest, and taxes, the company has $200 million in surplus cash on hand. Assuming its investor base is most concerned with capital appreciation, which of the following is the BEST option for the company?

Declare a special dividend.
Reinvest cash into the company.
Declare a cash dividend.
Repurchase shares of outstanding stock.

Answer(s): D

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QUESTION: 31

A company with constant earnings and excess cash is considering a significant stock repurchase plan. Which of the following is MOST LIKELY to occur?

Earnings per share will increase, and the number of shares outstanding will stay constant.
Earnings per share will decrease, and the number of shares outstanding will increase.
Earnings per share will increase, and the number of shares outstanding will decrease.
Earnings per share will decrease, and the number of shares outstanding will stay constant.

Answer(s): C

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