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Unformatted text preview: companies should follow a stable dividend policy. Answer is e. 3. The advantages of a stock repurchase compared to a dividend include: a. Investors see a repurchase as a good signal b. Shareholders have more choice c. Any large blocks of shares that are depressing the market price can be removed d. Managers can issue excess earnings to shareholders without altering dividends e. All of the statements above Answer is e. 4. Firm M is a mature firm in a mature industry. Its annual net income and net cash flow are both consistently high and very stable. The company's growth prospects are quite limited; therefore, the company's capital budget is small relative to its net income. Firm N is a relatively new firm in a new industry. Its annual operating income fluctuates considerably, but the company has substantial growth opportunities. Its capital budget is expected to be large relative to its net income for the foreseeable future. Which of the following statements is most correct? a. Firm M probably has a lower debt ratio than Firm N. b. Firm...
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