In practice, there may be an increase in the share price following the announcement by a company of a forthcoming bonus issue. Which of the following is a likely explanation of this phenomenon?

Select one:

a.Companies tend to increase their total dividend payout following a bonus issue.

b.Bonus issues create wealth for shareholders.

c.Bonus issues reduce the debt/equity ratio and, therefore, the riskiness of the firm.

d.Bonus issues increase the dividend payout ratio of companies.

Which of the following statements generally gives the correct order in which management choose amongst alternatives to finance projects following pecking-order theory?

Select one:

a.(1) Retained earnings; (2) ordinary shares; (3) debt; and (4) convertible debt

b.(1) Retained earnings; (2) debt; (3) convertible debt; and (4) ordinary shares

c.(1) Retained earnings; (2) convertible debt; (3) ordinary shares; and (4) debt

d.(1) Convertible debt; (2) ordinary shares; (3) debt; and (4) retained earnings

A share buy-back:

Select one:

a.could be used by management to signal that shares are not overvalued.

b.is an indication that the company has good investment opportunities, thus leading to an increase in the share price.

c.Both A and B.

d.None of the above.