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Test Review - Anthony SheltonYour test grade is 93.33%The professor has configured this test to allow students to:Show Questions Answered CorrectlyShow Questions Answered IncorrectlyShow All Responses Selected By StudentShow What The Correct Response Should BeQUESTION:1[QUESTION BANK ID:269594]TYPE:MULTIPLE CHOICECORRECTWhich of the following statements is correct?AOne advantage of dividend reinvestment plans is that they enable investors to avoid paying taxes on the dividends they receiveBIf a company has an established clientele of investors who prefer a high dividend payout, and if management wants to keep stockholders happy, it shouldnot follow the strict residual dividend policyCIf a firm follows a strict residual dividend policy, then, holding all else constant, its dividend payout ratio will tend to rise whenever the firm’s investmentopportunities improveDIf Congress eliminates taxes on capital gains but leaves the personal tax rate on dividends unchanged, this would motivate companies to increase theirdividend payout ratiosEDespite its drawbacks, following the residual dividend policy will tend to stabilize actual cash dividends, and this will make it easier for firms to attract aclientele that prefers high dividends, such as retireesQUESTION:2[QUESTION BANK ID:269596]TYPE:MULTIPLE CHOICECORRECTLangston Labs has an overall (composite) WACC of 10%, which reflects the cost of capital for its average asset. Its assets vary widely in risk, and Langstonevaluates low-risk projects with a WACC of 8%, average-risk projects at 10%, and high-risk projects at 12%. The company is considering the following projectsProjectRiskExpected ReturnAHigh15%
BAverage12%CHigh11%DLow9%ELow6%Which set of projects would maximize shareholder wealth?QUESTION:3[QUESTION BANK ID:269606]TYPE:MULTIPLE CHOICECORRECTSchalheim Sisters Inc. has always paid out all of its earnings as dividends; hence, the firm has no retained earnings. This same situation is expected to persist inthe future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt.Which of the following events would reduce its WACC?