1. Clientele effect means different groups of investors, or clienteles, prefer different dividend policies. A firms past dividend policy determines its current clientele of investors. So the Clientele effects help changing dividend policy.

A. True

B. False

2. What is the most correct implication of the additional funds needs (AFN)?

A. If AFN is negative, then you must secure additional financing.

B. If AFN is negative, then you have extra funds to pay off debt.

C. If AFN is positive, then you have extra funds to buy some short-term investments.

D. If AFN is positive, then you have extra funds to repurchase additional new stock.