Question

QUESTION 21

1. One implication of the tradeoff theories of capital structure decision is that firms that are likely to pay taxes at high rates should carry more debt than firms in lower tax brackets.

True

False

1 points   

QUESTION 22

1. One implication of the tradeoff theories of capital structure decision is that risky firms, as measures by the variability of asset returns, ought to borrow more, other things equal.

True

False

QUESTION 25

1. One would normally expect the price of stock to go up by approximately the amount of the dividend on the ex-dividend date.

True

False

1 points   

QUESTION 26

1. One implication of the clientele effect is that high-tax-bracket investors tend to hold relatively high dividend-yield stocks.

True

False

1 points   

QUESTION 27

1. It was found that stock prices tend to increase after announcements of stock repurchase by tender offer.

True

False

Answer 1

Answer(22): False,

Risky firms borrow less as the default risk will increase due to higher variance rate if they borrow more.

Answer(25): True,

Yes, the price of stock goes up when ex-dividend date comes nearer. Ex dividend date is the date after which investor will not be eligible to get the dividend, it is two days prior to the date of record.

Answer(26): True,

Clients with high tax bracket, tend to hold high dividend yield stocks because long term capital gain tax is lower for higher income group people so they want to hold the stock for more than a year.

Answer(27): True,

Stock repurchase is done by the company when stock price is moving in a range and not going up, to boost its share price, company repurchases the shares from the market so as to increase the per share value, it is more like paying the dividend. This corporate action increases the price of stock.