a. True. When investors sell their stock they are subject to capital gains taxes.

b. True. If a company's stock splits 2 for 1 , and you own 100 shares, then after the split you will own 200 shares.

c. True. Dividend reinvestment plans that involve newly issued stock will increase the amount of equity capital available to the firm.

d. False. The tax code, through the tax deductibility of interest, encourages firms to use debt and thus pay interest to investors rather than dividends, which are not tax deductible. In addition, due to a lower capital gains tax rate than the highest personal tax rate, the tax code encourages investors in high tax brackets to prefer firms who retain earnings rather than those that pay large dividends.

e. True. If a company's clientele prefers large dividends, the firm is unlikely to adopt a residual dividend policy. A residual dividend policy could mean low or zero dividends in some years which would upset the company's developed clientele.

f. False. If a firm follows a residual dividend policy, all else constant, its dividend payout will tend to decline whenever the firm's investment opportunities improve.