Question

Miller and Modigliani also studied dividend policy and determined that in their world of perfect capital markets (no taxes, no bankruptcy costs, no asymmetric information) that dividend policy DOES matter.

True

False

When a firm is young and growing, managers tend to have high dividend payout ratios in an attempt to encourage investors to buy the stock.

True

False

Equity provides more financial flexibility for a firm than debt.

True

False

Issuing debt rather than equity will automatically increase a firm's EPS and EBIT.

True

False

Depending on the firm's current capital structure, as well as the capital structure following today's financing decision, the firm may be implicitly deciding on future financing as well. True

False

For an all-equity firm, the cost of equity is equal to the overall cost of capital.

True

False

Issuing equity automatically hurts existing shareholders.

True

False

If bond and stock markets are efficient, then the timing of when to issue debt or equity should not matter.

True

False

A point to keep in mind is that financial managers should consider taking less financial risk when operating risk is high, but may consider taking more financial risk when operating risk is low.

True

False

Based solely on risk considerations, a mixed debt and equity firm does not have to worry about any financial obligations related to creditors.

True

False

Answer 1

1.) TRUE

2.) TRUE.. SICNE FIRM IS GROWING THEY WANT HEAVY INVESTMENT ...

3.) TRUE ..SINCE THEY NEED NOT PAY BACK IN NEAR FUTURE

4.) FALSE... SINCE DEBT REDUCES EBIT BY ADDING INTEREST TO COST SO EBIT REDUCES

5.) TRUE.. SINCE NO DEBT WAAC SHALL BE COST OF EQUITY ONLY

6.) TRUE .. SINCE THERE EARNING REDUCES ….DUE TO ISSUE OF NEW CAPITAL

7.) TRUE..SINCE MARKET IS EFFICINET

8.) FALSE .. EVEN WHEN OPERATING RISK LOW IT IS BETTER TO TAKE FINANCIAL RSIK LOW.

9.) FALSE .. EVEN MIXED FIRM NEED TO CONSIDER THE RISK OF CREDITORS