Question 1: Marcus Corporation has a capital budget of $5 million and wants to maintain a capital structure of 40% debt and 60% equity. The company expects net income of 4 million. What is the expected dividend payout ratio if the company follows a residual dividend policy?
- 50%
- 40%
- 20%
- 25%
- none of the above
Question 2: MLC, Inc. stock sold for $75 per share prior to a 4 for 1 stock split. What is the expected post-split stock price, everything else held constant?
- $50.00
- $37.50
- $18.75
- $71.00
- none of the above
Question 3: A company’s dividend policy decision should not be influenced by which of the following?
- Constraints imposed by the firm's bond indenture.
- The fact that much of the firm's equipment has been leased rather than purchased
- The firm's ability to accelerate investment projects.
- The firm's ability to delay investment projects
- none of the above
Question 4: A company's stock sells for $2.00 per share. The company wants to use a reverse split to get the price up to $22 per share. How many of the old shares must be given up for one new share to get to the $22 price? Assume this transaction has no effect on market value.
- 22.0
- 20.5
- 10.0
- 12.0
- none of the above
Question 5: Which of the following would be most likely to result in an increase in a firm's dividend payout ratio?
- Its access to the capital markets decreases.
- It has more high-return investment opportunities
- Its accounts receivable increase due to a change in its credit policy.
- It has fewer high-return investment opportunities.
- none of the above
Question 6: A company wants to raise $10 million in equity at an expected offering price of $20 per share. Its investment banker will receive $1.50 for each share sold and incur expenses of $1 million. How many shares must be sold for the company to receive $10 million. Round to the nearest whole number.
- 450,000
- 594,595
- 500,000
- 540,541
- none of the above
Question 7: A company is planning an IPO of 10 million shares. Each share is expected to sell at $10 per share. The underwriters will charge an 8% spread and incur expenses of $500,000. How much will the company receive if all shares sell at the expected price?
- $91,450,000
- $92,000,000
- $100,000,000
- $99,500,000
- none of the above
Question 8: A company sold 10 million shares in an IPO at a price of $10 per share. The underwriters charged an 8% fee and incurred expenses of $500,000. Price per share at the end of the first day was $12.50. How much money was left on the table?
- $15.8 million
- $33 million
- $17 million
- $25 million
- none of the above
Question 9: Which of the following is a good reason for a company to go public?
- The company has excess capital
- The company has a low debt ratio
- The company's founders want to diversify
- Costs of reporting will be low
- none of the above
Question 10: A large company with publicly traded stock plans to issue additional shares. This is called:
- a shelf registration
- A private placement
- a seasoned equity offering
- an employee stock option plan
- none of the above