Reynolds Paper Products Corporation follows a strict residual dividend policy. All else equal, which of

the following factors would be most likely to lead to an increase in the firm's dividend per share?

a$.$ The firm's net income increases.

b$.$ The company increases the percentage of equity in its target capital structure.

c$.$ The number of profitable potential projects increases.

d$.$ Congress lowers the tax rate on capital gains. The remainder of the tax code is not changed.

e$.$ Earnings are unchanged, but the firm issues new shares of common stock.

Which one of the following statements is TRUE?

a$.$ The Corporate Valuation Model can be used to value companies whose capital structure is

changing as long as the interest rate on the debt doesn't change.

b$.$ The Corporate Valuation Model discounts FCFs at the unlevered cost of equity to obtain the

intrinsic value of the firm's equity.

c$.$ The APV model discounts the FCFs at the WACC to obtain the value of the tax shields.

d$.$ The Corporate Valuation Model and the APV models will give the same answer for companies

whose capital structure changes during the projection period, but whose capital structure remains

constant over the horizon.

e$.$ The APV model can be used to value companies whose capital structure is changing and

companies whose capital structure is not changing

Faust Inc., is considering levering up its capital structure from $10\%$ debt to $40\%$ debt. Which of the

following statements is FALSE?

a$.$ The cost of equity will increase.

b$.$ The free cash flow will increase

c$.$ The value of the tax shield will increase.

d$.$ The amount of taxes paid will decrease.

e$.$ The risk of bankruptcy will increase.

Which one of the following statements about dividend policies is FALSE?

a$.$ One advantage of dividend reinvestment plans is that they allow shareholders to maintain a

position in a company with minimal trading.

b$.$ One key disadvantage of a residual dividend policy is that it makes it hard for a company to

follow a stable dividend policy.

c$.$ The clientele effect suggests that brokerage companies should choose customers whose

dividend preferences match those of their client service borkers.

d$.$ The "bird$-$in$-$the$-$hand effect" is the argument that investors prefer dividends to capital gains

because dividends are more certain than capital gains.

e$.$ In today's tax environment, gains through stock repurchases and dividend payments are taxed

at the same rate.