© Question 1 q® -- Company XYZ issues bonds seying that it will use the proceeds for a safe investment. Instead, it uses the proceeds for a risky investment. Whase interest will be compromised, stockhalders or debtholders? Answer debtholders © ouestion 2 an David Rose Inc. forecasts a capital budget of $500.000 next year with forecasted net income of $400.00. The company wants to maintain a target capital structure of 30% debt and 70% equity. Ifthe company follows the residual dividend policy, how much in dividends, if any, will it pay? Hide answer choices « Correct answer Show feedback » © Question 3 qeep -- If investors prefer firms that retain most of their earnings, then a firm that wants to maximize its stock price should set a low payout ratio. © Question 4 qe -- Which of the following statements is correct? Hide answer choices « Oe ems ‘Very often, a company’s stock price will decline when it announces that it plans to commence a share repurchase program ‘because a repurchase announcement usually is seen as a negative signal from management. © teacompany ns ar skp ts sock prie shuld usp double © Me ate eters wetestesphaaton or vy companles tad wo vary hl head paymens rm quarter‘ quarte © None of the above. © auestion 5 an ‘Which one of the following corporate board characteristics usually Improves corporate governance? Hide answer choices « @ Mobos tsa majority ofeies wh hv experience and arc © croissornc caiman tte bard a © Mrerosisasingeas spose © Beard menbersare pi ata rate bie tna hi pers andthe payet is most ash The board has a majority of insiders from company management on it who bring first-hand knowledge of how the company © commen © Question 6 an oe Which of the following statements is correct? Hide answer choices « @ Firms with a lot of good investment opportunities and a relatively small amount of cash tend to have above average payout ratios. An increase in the stock price when a company decreases its dividend is consistent with signaling theory: income will probably maximize the stock price. ‘Stock repurchases make the most sense at times when a company believes its stock is undervalued. Correct answer © Mites corer a company hw ering Bacto ofpsng constant prceniagofe © None of the above.