(Dividend

policy and stock

prices)

Explain the notion of a perfect capital market. Use common-sense language such as you might use in explaining the concept to your grandfather who has never taken a finance class.

Which of the following statements regarding a perfect capital market is false?(Select the best choice below.)

A.

There are conflicts of interest between managers and stockholders.

B.

Financial distress and bankruptcy costs are nonexistent.

C.

Investors can buy and sell stocks without incurring any transaction costs, such as brokerage commissions.

D.

Companies can issue stocks without any cost of doing so.

E.

Complete information about the firm is readily available.

F.

There are no corporate or personal taxes.