FIN 3403- Final conceptual Exam With
Complete Solutions
According to the residual theory of dividends, - ANSWER dividends should be paid only
after all investment financing needs have been met.
Stock Dividends - ANSWER increase the number of shares outstanding
Which Dividend policy causes dividends per share to fluctuate the most? - ANSWER
constant dividend payout ratio policy
Rank the dividend payout procedure in the proper chronological order - ANSWER
declaration date, ex-dividend date, record date, payment date
The optimal capital structure is determined by what several factors? - ANSWER
business risk
potential bankruptcy costs
agency costs
debt tax sheild
According to Modigliani-Miller (independence) hypothesis of capital structure, as the use
f debt finances increases, - ANSWER the cost of capital and the cost of debt remain
constant while the cost of equity increases.
There is an agency relationship between bondholders and stockholders. The agency
costs that arise as a result of this relationship - ANSWER reduce the market value of
the levered firm
According to the moderate view of capital structure, as the use of debt financing
increases, - ANSWER there will be an optimal capital structure, but NOT at 100 percent
debt.
The objective of capital structure management is to find the capital mix that results in: -
ANSWER MAXimization of shareholder wealth and MINImization of the cost of capital.
Complete Solutions
According to the residual theory of dividends, - ANSWER dividends should be paid only
after all investment financing needs have been met.
Stock Dividends - ANSWER increase the number of shares outstanding
Which Dividend policy causes dividends per share to fluctuate the most? - ANSWER
constant dividend payout ratio policy
Rank the dividend payout procedure in the proper chronological order - ANSWER
declaration date, ex-dividend date, record date, payment date
The optimal capital structure is determined by what several factors? - ANSWER
business risk
potential bankruptcy costs
agency costs
debt tax sheild
According to Modigliani-Miller (independence) hypothesis of capital structure, as the use
f debt finances increases, - ANSWER the cost of capital and the cost of debt remain
constant while the cost of equity increases.
There is an agency relationship between bondholders and stockholders. The agency
costs that arise as a result of this relationship - ANSWER reduce the market value of
the levered firm
According to the moderate view of capital structure, as the use of debt financing
increases, - ANSWER there will be an optimal capital structure, but NOT at 100 percent
debt.
The objective of capital structure management is to find the capital mix that results in: -
ANSWER MAXimization of shareholder wealth and MINImization of the cost of capital.
