- CFA Exams
- CFA Level I Exam
- Study Session 7. Corporate Finance (1)
- Reading 21. Analysis of Dividends and Share Repurchases
- Subject 1. Dividend policy and company value: theory

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**CFA Practice Question**

Barklay Franton's firm is an all-equity firm that has earnings before tax of $200,000 and 20,000 shares of stock outstanding, with each share being worth $100. Assume that you own 2,000 shares, there are no taxes, and capital markets are perfect. Assume that the firm pays no dividend. How could you transact on your own initiative to pay yourself a dividend of $5 per share?

A. Sell 50 shares.

B. Sell 100 shares.

C. Sell 200 shares.

**Explanation:**The total cash flow from a $5/share dividend would be $10,000 for you. Selling shares at $100/share, you would need to sell 100 shares to generate $10,000 cash flow.

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**User Contributed Comments**
4

User |
Comment |
---|---|

murli |
Self made dividend (MM dividend irrelevance theory) |

roninacolyte |
Quick setup: x($100)/(2,000-x)=$5; x is number of shares that need to be sold. This question makes a great GMAT math problem. |

wldu |
5 x 2000 =10000 ttl cash flow 10000/$100=100 shares |

somk |
a great GMAT problem???? u need 5 dollars per share. 5X2000. that's 10,000. that's 100 shares at 100$. this question makes a great 5-grade math question |