[Assignment 7] Each question is worth 2 points.

1. A company has decided to increase its dividends. Will this necessarily have a positive impact on its stock? Why or why not?

2. ?Risky companies tend to have lower target payout ratios.? Explain what is meant by this statement. Why do you think it is so?

3. ABC Inc. expects $1.0 million of net income available toshareholders for next year. The company's optimal capital

structure is 40% debt and 60% equity. The capital needs for nextyear are $1.5 million. If the firm uses a residual dividendpolicy, what will be the firm's dividends for next year? What ifthe company?s optimal capital structure is 20% debt and 80%equity?

4. You own a significant number of shares of XYZ Company?s stock. Today the company announced that it will repurchase 30% of its outstanding shares. Is it good news or bad news to you? Why?

5. A company just announced a five-for-three stock split. What does it mean? If you have 1,500 shares of the company?s stock, what will happen to you?

[Assignment 7] Each question is worth 2 points. 1. A company has decided to increase its dividends. Will this necessarily have a positive impact on its stock? Why or why not? 2. \"Risky companies tend to have lower target payout ratios.\" Explain what is meant by this statement. Why do you think it is so? 3. ABC Inc. expects $1.0 million of net income available to shareholders for next year. The company's optimal capital structure is 40% debt and 60% equity. The capital needs for next year are $1.5 million. If the firm uses a residual dividend policy, what will be the firm's dividends for next year? What if the company's optimal capital structure is 20% debt and 80% equity? 4. You own a significant number of shares of XYZ Company's stock. Today the company announced that it will repurchase 30% of its outstanding shares. Is it good news or bad news to you? Why? 5. A company just announced a five-for-three stock split. What does it mean? If you have 1,500 shares of the company's stock, what will happen to you