1. Which of the following statements about dividend is true?

A. Dividend Irrelevance Theory says that Investors are indifferent between dividends and retention-generated capital gains. If they want cash, they can sell stock. If they dont want cash, they can use dividends to buy stock.

B. Tax Preference Theory indicates that low dividend payments mean higher capital gains. Capital gains taxes are lower than dividend taxes, and they can be deferred. So investors prefer low-dividend-payments or non-dividend-payments firms.

C. Based on the Bird-in-the-hand theory, a firm should set high dividend payout ratio to increase firm value.

D. Tax preference theory Implies payout policy has no effect on stock value or the required return on stock.

2. 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

3. 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.