Question 1:

Jack is a current stockholder in Cocola. The Compnay announced a dividend increase of $0.10 per share as well as a new security offering. A plausible explanation for Cocola's actions would be:

A. The firm has not realized sufficient cash flow from operations and is in need of external financing to meet its dividend policy.

B. The firm is in need of capital to maximize current shareholder wealth through dividend payment rather than retained earnings.

C. The firm is in need of capital to fund positive NPV projects and would like to send a signal to investors that future earnings will be increasing.

D. The firms retained earnings have not been sufficient enough to finance all positive NPV projects and external financing is now required in order to meet stated dividend requirements.

E. The firm requires external financing due to an increase in working capital stocks.

Question 2:

Which bond would you expect to have a higher value all other things equal?

A. Bonds with call and convertible features.

B. Bonds with call but not convertible features.

C. Bonds without call but convertible features.

D. Bonds without call or convertible features.

E. None of the above.