Practice CH18 - Quiz for Lecture 10 1. The optimal...

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Quiz for Lecture 10 1. The optimal distribution policy for a firm strikes a balance between current dividends and capital gains, and results in the maximization of stock price. a. True b. False 2. If a firm adopts a residual distribution policy, distributions are determined as a residual item. Therefore, the better the firm's investment opportunities, the lower its distributions should be. a. True b. False 3. Which of the following statements best describes the theories of investors’ preferences for dividends? a. Modigliani and Miller argue that investors prefer dividends to capital gains. b. The bird-in-hand theory suggests that a company can reduce its cost of equity capital by reducing its dividend payout ratio. c. The tax preference theory suggests that a company can increase its stock price by increasing its dividend payout ratio. d. One key advantage of a residual distribution policy (with all distributions as dividends) is that it enables a company to follow a stable dividend policy. e.
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This note was uploaded on 03/16/2011 for the course FM 11 taught by Professor Teerana during the Spring '11 term at Thammasat University.

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Practice CH18 - Quiz for Lecture 10 1. The optimal...

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