1. What is a justifiable reason for the use of convertible debt? What kind of firms are more likely to use convertible debt?

2. "A firm should not pay dividend if it can reinvest the money in new projects at a profitable rate. Otherwise, shareholders will lose the value of the foregone projects." Comment.

3. Stockholders prefer a safe dividend rather than a risky capital gain. Comment.

4. Stock prices react positively to dividend increases. This shows that investors prefer more dividends. Comment.

5. In financial distress firms may make sub-optimal investment decisions. Explain the rationale behind this statement.