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Which of the following statements would be consistent with Dividend Irrelevance Theory?
Which of the following statements would be consistent with Dividend Irrelevance Theory?
- There is no relationship between a firm's dividend policy and the value of its common stock.
- Investors prefer high payout ratio companies.
- Investors prefer low payout ratio companies.
- None of the above
The required rate of return of project is the prime rate.
True
False
Which of the following is true about the trade-off theory of capital structure (Moderate View or Static View)?
- Value of the firm increases with debt financing.
- Value of the firm decreases with debt financing..
- Value of the firm will be unaffected by the manner in which a firm finances its assets.
- Value of the firm first rises, riches a maximum and then falls as the firm uses more debt
Which of the following statements concerning the asymmetric information theory of capital structure is FALSE?
If outside funds are required, managers would issue new common stock if they believe their stock is overvalued.
If outside funds are required, managers would issue debt when they believe their stock is undervalued.
Investors recognize managers' incentives and hence tend to mark down a firm's stock price when new common stock is issued.
Firms should maintain a reserve debt capacity, so that they can always issue debt under relatively favorable terms.
Firms should over leverage, so that they can always issue new common stock under relatively favorable terms.
