1.) The argument that homemade dividends would lead to the irrelevance of dividend policy hinges critically on the assumption

Select one:

a.that shareholders are willing to buy more shares.

b.that the capital asset pricing model can be used to value shares.

c.of no taxes and transaction costs.

d.that the company will issue more shares.

e.of stable dividend payment.

2.) In terms of changes in the number of shares outstanding, a 20% stock dividend is equivalent to a ____________ stock split.

Select one:

a.six for five

b.six for four

c.five for three

d.five for four

e.seven for six

3.) STU Mobility Inc. will pay $3 per share in cash dividends one year from now, and a liquidating dividend of $75 per share two years from now. The required return on similar common stocks is 12%. If you own 1,000 shares of the 100,000 total shares outstanding in STU, but you want to have constant dividend payout in the next two years, how much homemade dividends can you get in each year?

4.) Discuss the three plausible reasons why stock prices tend to decline following the announcement of a new equity issue, but tend to rise following a debt announcement.