Fundamentals of Financial Management, Third Edition

OBJECTIVE-TYPE QUESTIONS

1. Mark true or false.
   1. Shareholders prefer cash dividend when tax rate on dividend is greater than tax rate on capital gains.
   2. Transaction cost involved in the sale of shares motivates shareholders to get cash dividend.
   3. According to Walter, retention of earnings helps increase share prices only when return from investment is greater than capitalisation rate.
   4. Lower-income shareholders normally prefer retention of earnings in order to meet their consumption budget.
   5. Stable dividend does not mean a fixed dividend pay-out ratio.
   6. Reverse split means breaking the share into two or more parts.
   7. Bonus shares are issued when cash has to be conserved in the enterprise.
2. Choose the most suitable answer.
   1. M-M theory in perfect market ...