1. Do you think it would ever be rational for a firm to borrow money to pay dividends? Explain.

2. Last year, ZZZ Company retained $200,000 of the $500,000 net income it generated. This year, ZZZ Company generated net income equal to $600,000. If ZZZ Company follows the constant payout ratio dividend policy, how much should be paid in dividends this year?

3. The YYY Company expects this years net income to be $10 million. The firms debt/assets ratio is 25%. This year, YYY Company has $15 million profitable investment opportunities. According to the residual dividend policy, what should be YYY Companys payout ratio for this year?

4. Yesterday, ABC Company split its stock 7-for-1. A share of ABC stock sold for $49 prior to the split. What is the price of the stock today?

5. XYZ Company is considering a 1-for-4 reverse stock split. Its stock is currently selling for $20 per share. XYZ Company plans to pay a dividend equal to $0.50 per share after the split. But it would like to pay an equivalent dividend per share even if the split does not take place. (a) What will the price of the stock be immediately after the stock split? (b) What should the per share dividend be if XYZ Company doesnt split the stock?