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NEW QUESTION: 1
Which of the following statements about dividend policy and capital structure is FALSE?
A. If the board of directors decreases the target payout ratio, the stock price may increase or decrease.
B. Companies should use the residual dividend model to set the long-run target dividend payout ratio, but should not use it to set the dividend payment in any one year.
C. Assuming a world of taxes and bankruptcy, there is an optimal capital structure that maximizes earnings per share (EPS) and minimizes the cost of debt.
D. A company's growth rate equals the retention ratio multiplied by return on equity.
Answer: C
Explanation:
Explanation/Reference:
Explanation:
The optimal capital structure is the one that maximizes the stock price and minimizes the cost of capital.
The other statements are true. "A company's growth rate equals the retention ratio multiplied by return on equity," is simply the word version of the equation g = (1 - Payout Ratio) * ROE. Know this equation for the exam! A company that uses the residual dividend model to set the dividend payment in any one year will not have a stable payout ratio, and investors will likely demand a higher required return to offset this uncertainty. The higher required return will result in a lower stock price. If the board of directors decreases the target payout ratio, the stock price may increase or decrease because there will be two opposing effects. For example, this may result in a decrease in stock price (due to lower dividend payout, D1), and an increase in the stock price due to increased funds available for reinvestment. Remember: g = (1 - Payout) * ROE. The net effect partially depends on investor's preference for dividends over capital gains or vice versa.
NEW QUESTION: 2
Which one of the following four parameters is NOT a required input in the Black-Scholes model to price a
foreign exchange option?
A. Underlying exchange rates
B. Option exercise price
C. Discrete future stock prices
D. Underlying interest rates
Answer: C
NEW QUESTION: 3
You have a data warehouse in Azure Synapse Analytics.
You need to ensure c rest.
What should you enable?
A. Advanced Data Security for this database
B. Transparent Data Encryption (TDE)
C. Always Encrypted for all columns
D. Secure transfer required
Answer: B
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