Multiple Choice - 1. Which of the following statements is...

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1. Which of the following statements is CORRECT? A) One advantage of an open market dividend reinvestment plan is that it provides new equity capital and increases the shares outstanding. B) Stock repurchases can be used by a firm that wants to increase its debt ratio. C) One disadvantage of dividend reinvestment plans is that they increase transactions costs for investors who want to increase their investment in the company. D) Stock repurchases make sense if a company expects to have a lot of profitable new projects to fund over the next few years, provided investors are aware of these investment opportunities. E) One advantage of dividend reinvestment plans is that they enable investors to postpone paying taxes on the dividends credited to their account. 2) The fact that long-term debt and common stock are raised infrequently and in large amounts lessens the need for the firm to forecast those accounts on a continual basis. A) True B) False 3) Which of the following statements is NOT CORRECT? A) Stock repurchases can be used by a firm as part of a plan to change its capital structure. B) A company can repurchase stock to distribute a large one-time cash inflow, say from the sale of a division, to stockholders without having to increase its regular dividend. C) Stockholders pay no income tax on dividends if the dividends are used to purchase stock through a dividend reinvestment plan. D) After a 3-for-1 stock split, a company's price per share should fall, but the number of shares outstanding will rise. E) Investors may interpret a stock repurchase program as a signal that the firm's managers believe the stock is undervalued, or, alternatively, as a signal that the firm does not have many good investment opportunities. 4) Which of the following statements is CORRECT? A) Since receivables and payables both result from sales transactions, a firm with a high receivables-to-sales ratio must also have a high payables-to-sales ratio. B) Because of the costs of granting credit, it is not possible for credit sales to be more profitable than cash sales. C) A firm that makes 90% of its sales on credit and 10% for cash is growing at a constant rate of 10% annually. Such a firm will be able to keep its accounts receivable at the current level, since the 10% cash sales can be used to finance the 10% growth rate. D) Other things held constant, if a firm can shorten its DSO, this will lead to a higher current ratio. E) In managing a firm's accounts receivable, it is possible to increase credit sales per day yet still keep accounts receivable fairly steady, provided the firm can shorten the length of its collection period (its DSO) sufficiently. 5. Suppose you plotted a curve which showed a Firm U's WACC on the vertical axis and its debt ratio on the horizontal axis. Then you plotted a similar curve for Firm V. The curve for firm U resembled a shallow "U," while that for Firm V resembled a sharp "V." Both firms have debt ratios that cause their WACCs to be minimized. Other things held constant, it would be easier for
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Multiple Choice - 1. Which of the following statements is...

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