1. WL Corporation is located in a jurisdiction that has a 40% corporate tax rate on pretax income and a 30% personal tax rate on dividends. WL distributes all its after-tax income to shareholders. What is the effective tax rate on WL pretax income distributed in dividends?
42%.
58%.
70%.
2. Beta Corporation is a manufacturer of inflatable furniture. Which of the following scenarios best reflects a stable dividend policy for Beta?
Maintaining a constant dividend payout ratio of 40-50%.
Maintaining the dividend at $1.00 a share for several years given no change in Beta's
long-term prospects.
Increasing the dividend 5% a year over several years to reflect the two years in which
Beta recognized mark-to-market gains on derivative positions.
3. Investors may prefer companies that repurchase their shares instead of paying a cash
dividend when:
capital gains are taxed at lower rates than dividends.
capital gains are taxed at the same rate as dividends.
capital gains are taxed at the same rate as dividends.
4. Common-size analysis is used in financial analysis to:
evaluate changes in a company's operating cycle over time
compare companies of different sizes or to compare a company with itself over time.
restate each element in a company's financial statement as a proportion of the similar
account for another company in the same industry