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FIN 534 FINAL EXAM PART II 100 Percent Correct

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FIN 534 FINAL EXAM PART II 100 Percent Correct • Question 1 2 out of 2 points Which of the following is NOT normally regarded as being a good reason to establish an ESOP? . • Question 2 2 out of 2 points Which of the following is NOT normally regarded as being a barrier to hostile takeovers? • Question 3 2 out of 2 points Rohter Galeano Inc. is considering how to set its dividend policy. It has a capital budget of $3,000,000. The company wants to maintain a target capital structure that is 15% debt and 85% equity. The company forecasts that its net income this year will be $3,500,000. If the company follows a residual dividend policy, what will be its total dividend payment? • Question 4 2 out of 2 points Which of the following statements is CORRECT? a. When firms are deciding on the size of stock splits –say whether to declare a 2-for-1 split or a 3-for-1 split, it is best to declare the smaller one, in this case the 2-for-1 split, because then the after-split price will be higher than if the 3-for-1 split had been used. b. Back before the SEC was created in the 1930s, companies would declare reverse splits in order to boost their stock prices. However, this was determined to be a deceptive practice, and it is illegal today. c. Stock splits create more administrative problems for investors than stock dividends, especially determining the tax basis of their shares when they decide to sell them, so today stock dividends are used far more often than stock splits. d. When a company declares a stock split, the price of the stock typically declines–by about 50% after a 2-for-1 split–and this necessarily reduces the total market value of the equity. e. If a firm’s stock price is quite high relative to most stocks–say $500 per share–then it can declare a stock split of say 10-for-1 so as to bring the price down to something close to $50. Moreover, if the price is relatively low–say $2 per share–then it can declare a “reverse split” of say 1-for-25 so as to bring the price up to somewhere around $50 per share. • Question 5 2 out of 2 points Which of the following statements is correct? 1. If a firm repurchases its stock in the open market, the shareholders that tender are subject to capital gains taxes. 2. Some dividend reinvestment plans increase the amount of equity capital available to the firm. 3. If you own 100 shares in a company’s stock, and the company does a 2 for 1 stock split, you will own 200 shares in the company following the split. • Question 6 2 out of 2 points The capital budget of Creative Ventures Inc. is $1,000,000. The company wants to maintain a target capital structure that is 30% debt and 70% equity. The company forecasts that its net income this year will be $800,000. If the company follows a residual dividend policy, what will be its total dividend payment? • Question 7 0 out of 2 points Which of the following actions will best enable a company to raise additional equity capital? a. Declare a stock split. b. Begin an open-market purchase dividend reinvestment plan. c. Initiate a stock repurchase program. d. Begin a new-stock dividend reinvestment plan. e. Refund long-term debt with lower cost short-term debt. • Question 8 2 out of 2 points Which of the following statements is correct? 1. One disadvantage of dividend reinvestment plans is that they increase transactions costs for investors who want to increase their ownership in the company. 2. One advantage of dividend reinvestment plans is that they enable investors to postpone paying taxes on the dividends credited to their account. 3. Stock repurchases can be used by a firm that wants to increase its debt ratio. 4. Stock repurchases make sense if a company expects to have a lot of profitable new projects to fund over the next few years, provided investors are awar

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