1-Which of the following is NOT normally regarded as being a good reason to establish an ESOP?

	a.	To enable the firm to borrow at a below-market interest rate.
	b.	To make it easier to grant stock options to employees.
	c.	To help prevent a hostile takeover.
	d.	To help retain valued employees.
	e.	To increase worker productivity.

2-The CEO of D'Amico Motors has been granted some stock options that have provisions similar to most other executive stock options. If D'Amico's stock outperforms the market, these options will necessarily be worthless.

True

False

3- A reverse split reduces the number of shares outstanding.

True

False

4- If management wants to maximize its stock price, and if it believes that the dividend irrelevance theory is correct, then it must adhere to the residual distribution policy.

True

False

5- ESOPs were originally designed to help improve worker productivity, but today they are also used to help prevent hostile takeovers.

True

False

6- If investors prefer firms that retain most of their earnings, then a firm that wants to maximize its stock price should set a low payout ratio.

True

False