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QUESTION 5 You currently own 100 shares of a stock. The stock currently trades at $120 per share. The company is contemplating a 2-for-1 stock split. Which of the following best describes your position after the proposed stock split takes place? You will have 200 shares of stock, and the stock will trade at or near $120 per share You will have 200 shares of stock, and the stock will trade at or near $60 a share You will have 100 shares of stock, and the stock will trade at or near $60 a share You will have 50 shares of stock, and the stock will trade at or near $120 a share QUESTION 6 If a firm adheres to the residual dividend policy, then if its optimal capital budget requires the use of all earnings for that year, the firm should pay: No dividends except out of past retained earnings No dividends to common stock holders Dividends but out of a new issue of common stock Dividends by borrowing the money QUESTION 7 The Dividend Relevance Theory argues that: the required rate of return on the firm's equity is constant for any dividend policy because of perceived uncertainty about future growth, investors value a dollar of dividends more highly than a dollar of expected capital gains because investors have different dividend preferences, they value a dollar of expected capital gains more highly than a dollar of dividends. most investors will reinvest rather than spend dividends, so it would save investors money (taxes) if corporations simply reinvested earnings rather than paid them out as dividends QUESTION 8 David Peterson & Co. has a capital budget of $1,200,000. The company wants to maintain a target capital structure of 60 percent debt and 40 percent equity. The company forecasts that its net income this year will be $600,000. If the company follows a residual dividend policy, what will be its dividend payout ratio? Please refer to page 12 of your handout for an example. 20% 40% 60% 80%