Which of the following statements about dividend is NOT true? _____

	Bird-in-the-hand theory says that investors think dividends are less risky than potential future capital gains, so they like dividends.
	Tax preference theory indicates that low dividend payments mean higher capital gains. Capital gains taxes are lower than dividend taxes, and they can be deferred. So investors prefer low-dividend-payments or non-dividend-payments firms.
	Based on the Bird-in-the-hand theory, a firm should set low dividend payout ratio to increase firm value.
	Based on the Tax preference theory, a firm should pay less dividends to increase firm value.

The MM irrelevance capital structure theory proved that a firm's value is unaffected by its capital structure. But their study was based on all of the following strong assumptions excluding : _____

	There are no brokerage costs.
	There are corporate taxes and personal taxes.
	There are no bankruptcy costs and agency costs.
	There is no asymmetric information problem, and all investors can borrow at the same rate as corporations.

You currently own 1 share of stock in Berkshire Hathaway Inc. The stock currently trades at $195,000 a share. The company is contemplating a 1000-for-1 stock split. Which of the following best describes your position after the proposed stock split takes place? _____

	You will have 1 share of stock with $195,000 a share.
	You will have 1 share of stock with $195.0 a share.
	You will have 1,000 shares of stock with $195,000 a share.
	You will have 1,000 shares of stock with $195.0 a share.

If the information content, or signaling, hypothesis is correct, changes in dividend policy can be important because investors view dividend changes as signals of management's view of the future. _____

	True
	False

A firm has fixed operating costs of $500,000, variable costs of $4.00 per unit produced, and its products sell for $5.00 per unit. What is the company's breakeven point, i.e., at what unit sales volume would income equal costs?

	200,000
	250,000
	300,000
	500,000

A company has a levered beta of 1.60, its capital structure consists of 50% debt and 50% equity, and its tax rate is 40%. What would the firm's beta be if it used no debt, i.e., what is its unlevered beta?

	0.39
	0.80
	1.0
	1.6

There are two firms: Firm U and Firm L. Both firms have $100M total assets and $20M EBIT (earnings before interest and taxes). Firm U is an unleveraged firm without debt. Firm L is a leveraged firm with 40% of debt and 60% of common equity. The pre-tax cost of debt for Firm L is 10%. Both firms have 30% corporate tax rate. Calculate the return on equity (ROE) for the unleveraged firm U and leveraged firm L ______

	9.6%, 13.2%
	14.0%, 18.7%
	12.0%, 16.0%

A company expects to have net income of $5,000,000 during the next year. Its target capital structure is 30% debt and 70% equity. The company has determined that the optimal capital budget for the coming year is $6,000,000. If Davis follows a residual distribution policy (with all distributions in the form of dividends) to determine the coming year's dividend, then what is Davis's dividend payout ratio? _____

	25%
	40%
	30%
	16%

A stock was trading at $200 per share before its recent 4-for-1 stock split. The 4-for-1 split led to a 5% increase in the stock price. What was the stock price after the stock split? _____

	$52.5
	$55
	$200
	$220