QUESTION 10

1. In dividend reinvestment plans, stockholders receive additional shares instead of cash dividends. Shareholders:

   	a.	are not taxed at the time of the dividend because they received no cash.
   	b.	must pay tax on the dividend amount when the shares are sold.
   	c.	must pay tax in the year of the dividend on the value used to buy the new shares.
   	d.	must pay tax on the full value of the new shares at the time they are sold.

2 points

QUESTION 11

1. The main purpose of a stock split is to:

   	a.	immediately increase shareholder wealth.
   	b.	send a positive signal when the firm can't afford to give stockholders cash.
   	c.	keep the price in a trading range so it's accessible to small investors.
   	d.	give stockholders something that doesn't cost the company anything.

2 points

QUESTION 12

1. The cost of equity from selling new stock is greater than the cost of retained earnings because:

   	a.	dividends are increased.
   	b.	of the flotation costs.
   	c.	selling new stock increases the market price of the stock.
   	d.	selling new stock decreases the earnings per share.