63. The level of sales at which expected EPS will be the same regardless of whether the firm uses debt or common stock financing is called the EPS indifference point. a. True b. False 64. Asymmetric information involves a situation where the firm's managers have different (better) information about their firm's prospects than do investors a. True b. False 65. Because creditors can foresee, to at least some extent, the costs of bankruptcy, they charge an interest rate that has a premium built into it to compensate for the present value of bankruptcy costs. a. True b. False 66. In a world with no taxes, MM show that the capital structure of a firm does not affect the value of the firm. However, when taxes are considered, MM show a positive relationship between debt and firm value. a. True b. False 67. One of the implications of signaling theory for capital structure decisions is that firms should normally seek to maintain a reserve borrowing capacity. a. True b. False 68. The optimal dividend policy for a firm strikes a balance between payment of current dividends and retention of earnings for future growth, and results in the maximization of stock price. a. True b. False 69. If investors do, in fact, prefer that firms retain most of their earnings, then firms that want to maximize stock price should hold dividend payments to low levels a. True b. False 70. In theory, dividends are determined as a residual item. Therefore, the better the firm's investment opportunities, the ower its dividend payments should be. a. True b. False