4. Which of the following statements is FALSE?Video: 6.D. P26-33 (Other considerations)Group of answer choicesD After adjusting for investor taxes, there remains a substantial tax advantage for the firm to retain excess cash.C) In perfect capital markets, if a firm invests excess cash flows in financial securities, the firm’s choice of payout versus retention is irrelevant and does not affect the initial share price.A) A firm must balance the tax costs of holding cash with the potential benefits of financial flexibility to profit from future growth opportunities.B) Paying out excess cash through dividends or share repurchases can boost the stock price by reducing managers’ ability and temptation to waste resources.

Which of the following statements is FALSE?Video: 6.C. P17-25 (Payout policy with taxes)Group of answer choicesA) Unlike with capital structure, taxes are not an important market imperfection that influence a firm's decision to pay dividends or repurchase shares.D) The optimal dividend policy when the dividend tax rate exceeds the capital gains tax rate is to pay no dividends at all.C) When the tax rate on dividends exceeds the tax rate on capital gains, shareholders will pay lower taxes if a firm uses share repurchases for all payouts rather than dividendsB) If dividends are taxed at a higher rate than capital gains, shareholders will prefer share repurchases to dividends.

2. Which of the following statements is FALSE?Video: 6.B. P5-16 (Payout policy with perfect markets)Group of answer choicesD) In perfect capital markets, investors are indifferent between the firm distributing funds via dividends or share repurchases. By reinvesting dividends or selling shares, they can replicate either payout method on their own.C) In perfect capital markets, an open market share repurchase has no effect on the stock price, and the stock price is the same as the ex-dividend price if a dividend were paid instead.B) In a perfect capital market, when a dividend is paid, the share price drops by the amount of the dividend when the stock begins to trade ex-dividend.A) In perfect capital markets, holding fixed the investment policy of a firm, the firm’s choice of dividend policy is irrelevant and does not affect the initial share price.

Which of the following statements is FALSE?Question 7Answera.We must discount the cash flows from stock based on the equity cost of capital for the stock.b.The capital gain is the difference between the expected sale price and the purchase price of the stock.c.We divide the capital gain by the expected future stock price to calculate the capital gain yield.d.The firm might pay out cash to its shareholders in the form of a dividend.

3. Which of the following statements is FALSE?Video: 5.F. P54-72 (Capital structure with other market imperfections 1)Group of answer choicesD) Firms have an incentive to increase leverage to exploit the tax benefits of debt. But with too much debt, they are more likely to risk default and incur financial distress costs.A) The tradeoff theory weighs the costs of debt that result from shielding cash flows from taxes against the benefits from the effects of financial distress associated with leverage.C) According to the tradeoff theory, the total value of a levered firm equals the value of the firm without leverage plus the present value of the tax savings from debt, less the present value of financial distress costs.B) Leverage has costs as well as benefits.

Which of the following statements is correct?1 pointThe purchase of new machinery decreases cash from operations.The repayment of a bank loan decreases cash from investing.Cash flow from operations increases when we recognize a credit sale.A payment of dividends decreases cash from financing.