QUESTION 20

The Harsanyi Corp. is considering four investments. Which provides the highest after-tax return for Harsanyi Corp. if it is in the 34% federal tax bracket? Assume the tax rate on dividends is 15%.

		Treasury bonds at 5.0%
		Corporate bonds at 8.0%
		Municipal bonds at 5.0%
		Preferred stock at 6.0%

2.5 points

QUESTION 21

The "marginal principle of retained earnings" holds that corporate investment should provide a return equal to or higher than what a stockholder could earn.

True

False

2.5 points

QUESTION 22

Stable dividends may cause a higher discount rate for the firm, thereby raising the value of the firm.

True

False

2.5 points

QUESTION 23

Investors in high marginal tax brackets usually prefer companies that reinvest most of their earnings, thus creating more growth in earnings and stock prices and deferring taxes into the future.

True

False

2.5 points

QUESTION 24

The marginal principle of retained earnings means that each potential project to be financed by retained earnings must

		provide a higher rate of return than the stockholders can achieve after paying taxes on the distributed dividends.
		yield a return equal to or greater than the marginal cost of capital.
		provide enough return to pay the corporation's marginal tax rate.
		have an internal rate of return greater than the corporate growth rate of dividends.

2.5 points

QUESTION 25

In the maturity stage, a firm

		is growing about the same rate as the economy as a whole.
		has returns on assets lower than those of the industry norm.
		loses market share and suffers a decline in profitability.
		pays out all earnings in dividends.

2.5 points

QUESTION 26

Which of the following does not affect a company's dividend policy?

		Legal rules concerning capital impairment
		The efficient market hypothesis
		Access to capital markets
		The tax position of shareholders

2.5 points

QUESTION 27

Firm X has declared a stock dividend that pays one share of stock for every five shares owned. After the stock dividend, earnings per share will

		remain the same.
		decline 20%.
		decline 5%.
		Not enough information is given to determine an answer.

2.5 points

QUESTION 28

Mirrlees Furniture earned $750,000 last year and had a 30% payout ratio. How much did the firm add to its retained earnings?

		$225,000
		$525,000
		There is not enough information to determine an answer.
		None of these options

2.5 points

QUESTION 29

According to the law, dividends may be funded from

		past earnings.
		current earnings.
		future earnings.
		past earnings and current earnings.