Question Details

 dividend-payout ratio




1. In general, it is more expensive for a company to finance with equity capital than in debt capital because.
a.	Long-term bonds have a maturity date and must therefore be repaid in the future.
b.	Investors are exposed to greater risk with equity capital
c.	Equity capital is in greater demand than debt capital
d.	Dividends fluctuate to a greater extent than interest rates.

2.	If company has a higher dividend-payout ratio, then, if all else is equal, it will have
 
a.	A higher marginal cost of capital
b.	A lower marginal cost of capital
c.	A higher investment opportunity schedule.
d.	A lower investment opportunity schedule.

3.	The expected return on Natter Corporation- stock is 14%.  The stock- dividend is expected to grow at a constant rate of 8%, and it currently sells for P50 a share.  Which of the following statements is CORRECT?
a.	The stock- dividend yield is 7%.
b.	The stock- dividend yield is 8%.
c.	The current dividend per share is P4.00.
d.	The stock price is expected to be P54 a share one year from now.

4.	Which of the following statements is CORRECT?
a.	Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income, but not to the proceeds in a liquidation.
b.	The preferred stock of a given firm is generally less risky to investors than the same firm- common stock.
c.	Corporations cannot buy the preferred stocks of other corporations.
d.	Preferred dividends are not generally cumulative.

5.	Which of the following statements is CORRECT?
a.	A major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights.
b.	Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm- common stock, and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock.
c.	The preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis) new issues of preferred stock.
d.   One of the disadvantages to a corporation of owning preferred stock is      that 70% of the dividends received represent taxable income to the corporate recipient, whereas interest income earned on bonds would be tax free.
 



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