Flotation costs can be significant. Which strategy is an argument for maintaining a low dividend policy? Maintaining a low dividend policy and rarely issuing extra dividends. Periodic extra dividend payments. Maintaining a constant dividend policy even if the firm frequently has to issue new shares. Issuing larger regular dividends than the industry norm.

Maintaining a low dividend policy and rarely issuing extra dividends.

Which statement about the cost of capital components is FALSE? The cost of new equity is (D1/Stock price net of flotation costs) plus growth rate. The cost of retained earnings is the required rate of return on common stock. The after-tax cost of debt is based on the expected yield to maturity on newly issued debt. The cost of new preferred stock is the preferred stock dividend by the preferred stock's par value.

The cost of new preferred stock is the preferred stock dividend by the preferred stock's par value.

If a firm uses the firm-wide WACC to discount cash flows of higher than average risk projects, what is likely to occur? Project NPVs will be understated. The firm risks rejecting profitable projects. The WACC of the firm should fall over time. The overall risk of the firm's investments will rise over time.

The overall risk of the firm's investments will rise over time.

M&M Proposition II with tax implies which of the following about the weighted average cost of capital? Weighted average cost of capital decreases as the debt-equity ratio increases. Cost of capital is the same regardless of the mix of debt and equity used. Value of an unlevered company equals the value of a levered company plus the value of the interest tax shield. Value of a company is inversely related to the amount of leverage used.

Weighted average cost of capital decreases as the debt-equity ratio increases.

Which statement accurately describes the optimal capital structure? Shareholder value is maximized when WACC is also maximized. The optimal capital structure maximizes shareholder value. Capital structure has no effect on shareholder value. The optimal capital structure occurs when the cost of equity is minimized.

The optimal capital structure maximizes shareholder value.

According to the static trade-off theory, what is true about a company's level of debt? Debt should be used only as a last resort. Companies have an optimal level of debt. The amount of debt a company has is irrelevant. New equity is always preferable to other sources of capital.

Companies have an optimal level of debt.

Corporate Finance: Dividend Policies, Capital Structure, and Cost of Capital

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Finance - Personal Finance

georgepetenjk Created by 10 mon ago

Cards in this deck(12)

Hasan Electric declared a dividend of $0.48 per share. The dividend will be paid on November 15 to shareholders of record on October 29. What is the ex-dividend date?

Flotation costs can be significant. Which strategy is an argument for maintaining a low dividend policy?

What term describes shareholders' ability to create an alternative dividend policy by reinvesting dividends or selling shares?

Which statement about the cost of capital components is FALSE?

If a firm uses the firm-wide WACC to discount cash flows of higher than average risk projects, what is likely to occur?

Using the CAPM approach, which action will decrease a firm's cost of equity if it currently pays an annual dividend of $2.40 per share and has a beta of 1.42?

According to the pecking order theory of capital structure, which statements are true?

M&M Proposition II with tax implies which of the following about the weighted average cost of capital?

Which statement accurately describes the optimal capital structure?

According to the static trade-off theory, what is true about a company's level of debt?

XYZ Inc. increased its debt-to-equity ratio from 0.65 to 0.75. What effect does this have on the asset beta and equity beta?

The common stock of Battle Gaming has a low dividend yield. The fact that most shareholders prefer capital gains over cash dividends is referred to as the _____ effect.

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