1. True-false statements (a) The objective of a corporation is to make money. (b) Public firms smooth dividend per share. (c) The average stock price reaction to a stock dividend announcement is negative. (d) Shareholders of a public firm cannot intervene with the management of the firm. (e) Making investments with positive net present value increases the share price. (f) Dividends fluctuate with earnings. (g) In a family firm, the firm's investment decision is separate from the shareholders' savings decisions. (h) Corporate retention at zero NPV is irrelevant. (i) A rights offer at a discount dilutes the stock price. (j) In a perfect capital market, the firm's investment-payout decision is separate from investors' consumption-savings decisions. (k) Shareholders of a non-traded family firm want management to use the NPV rule. (1) Share repurchases have a tax advantage over cash dividends. (m) Family firms smooth dividend per share. (n) With personal income tax, firms prefer dividends to repurchases. (o) US mutual funds grow after the enactment of the 401(k). 2. Additional true-false statements (a) Corporations borrow risk free. (b) Financial risk of debt decreases with leverage. (c) The expected rate of return on equity exceeds the expected rate of return on debt. (d) All economic agents regardless of their ability to pay back can borrow at the same interest rate. (e) Cost of equity increases with leverage. (f) Arbitrage ensures that two investment strategies with the same payoff command the same price. (g) There is a risk premium on corporate debt. (h) Financial risk of debt decreases with leverage. (i) Under the assumptions of the class (perfect markets), taking out a personal loan or a corporate loan is a matter of irrelevance. (j) Time preferences are irrelevant to investors in financial markets. (k) Volatility is irrelevant to pricing zero-coupon debt. (1) The Board of Directors hires the CEO. (m) In perfect markets, investment decisions depend on financing decisions. (n) Ownership rights and voting rights get separated when a stock trades between the record date and the general meeting date. (o) According to standard arguments, the price per share depends on the number of shares outstanding. (p) Share repurchases are good news for shareholders. 1. True-false statements (a) The objective of a corporation is to make money. (b) Public firms smooth dividend per share. (c) The average stock price reaction to a stock dividend announcement is negative. (d) Shareholders of a public firm cannot intervene with the management of the firm. (e) Making investments with positive net present value increases the share price. (f) Dividends fluctuate with earnings. (g) In a family firm, the firm's investment decision is separate from the shareholders' savings decisions. (h) Corporate retention at zero NPV is irrelevant. (i) A rights offer at a discount dilutes the stock price. (j) In a perfect capital market, the firm's investment-payout decision is separate from investors' consumption-savings decisions. (k) Shareholders of a non-traded family firm want management to use the NPV rule. (1) Share repurchases have a tax advantage over cash dividends. (m) Family firms smooth dividend per share. (n) With personal income tax, firms prefer dividends to repurchases. (o) US mutual funds grow after the enactment of the 401(k). 2. Additional true-false statements (a) Corporations borrow risk free. (b) Financial risk of debt decreases with leverage. (c) The expected rate of return on equity exceeds the expected rate of return on debt. (d) All economic agents regardless of their ability to pay back can borrow at the same interest rate. (e) Cost of equity increases with leverage. (f) Arbitrage ensures that two investment strategies with the same payoff command the same price. (g) There is a risk premium on corporate debt. (h) Financial risk of debt decreases with leverage. (i) Under the assumptions of the class (perfect markets), taking out a personal loan or a corporate loan is a matter of irrelevance. (j) Time preferences are irrelevant to investors in financial markets. (k) Volatility is irrelevant to pricing zero-coupon debt. (1) The Board of Directors hires the CEO. (m) In perfect markets, investment decisions depend on financing decisions. (n) Ownership rights and voting rights get separated when a stock trades between the record date and the general meeting date. (o) According to standard arguments, the price per share depends on the number of shares outstanding. (p) Share repurchases are good news for shareholders