1. Which of the following statements is correct?
a. If a firm repurchases its stock in the open market and then resells it later on at a higher price, then they will be subject to capital gains taxes.
b. An open-market dividend reinvestment plan will be most attractive to companies that need new equity and would be looking to issue additional shares of common stock.
c. Stock repurchases tend to increase financial leverage.
d. If a company declares a 2-for-1 stock split, its stock price should roughly double.
2. A firm has Net Income of $500,000, a capital budget of $600,000, and a target debt ratio of 40%. If the firm follows a residual dividend policy, then what is their payout ratio?
a. 28%
b. 36%
c. 48%
d. 56%