Question 1

Bonus share issues and share splits have which of the following effects?

Accepted Answer

A)  Always decreases the trading price of a company's shares. 
B)  Improves liquidity of the shares. 
C)  Always increases the trading price of a company's shares. 
D)  B and C

Question 2

The trade-off theory of capital structure says that managers will increase debt to the point at which:

Accepted Answer

A)  the costs of adding another dollar of debt is equal to the benefits. 
B)  the costs of adding another dollar of debt is smaller than the benefits. 
C)  the costs of adding another dollar of debt is greater than the benefits. 
D)  none of the above.

Question 3

When a company issues dividends, whether it is share buy-backs, cash dividends or special dividends, what implications will it have on the control of the company?

Accepted Answer

A)  Shareholders will lose some control over the company. 
B)  Shareholders will gain more control over the company. 
C)  It depends on the dividend policy and how the dividend is distributed. 
D)  None of the above.

Question 4

Which one of the following statements is consistent with the pecking order theory?

Accepted Answer

A)  In an average year, public companies actually repurchase more shares than they sell. 
B)  The more profitable a company is, the less debt it tends to have. 
C)  All of the above. 
D)  None of the above.

Exam 8: Capital Structure and Dividend Policy

Bonus share issues and share splits have which of the following effects?

The trade-off theory of capital structure says that managers will increase debt to the point at which:

When a company issues dividends, whether it is share buy-backs, cash dividends or special dividends, what implications will it have on the control of the company?

Which one of the following statements is consistent with the pecking order theory?