1. Nike has a dividend policy whereby the firm pays a constant annual dividend of $2.00 per share of common stock. The firm has 5,000 shares of stock outstanding. The company:

A. must always show a current liability of $10,000 for dividends payable.

B. is obligated to pay $2.00 per share each year in perpetuity.

C. must still declare each dividend before it becomes an actual company liability.

D. incurs a liability that must be paid at a later date should the company miss paying an annual dividend payment.

E. will be declared in default if it does not pay at least $2.00 per share per year on a timely basis.

2. Homemade leverage is employed when a(n) ________:

A. corporation uses debt to pay dividends to shareholders.

B. investor uses debt to change his or her exposure to financial leverage.

C. corporation uses debt exclusively to fund a corporate expansion project.

D. firm increases its level of debt.

E. firm employs any amount of debt in its capital.