1. The reason that the net income is not the amount that a company can afford to pay out in dividends is because
a. earnings are not cash flows.
b. some of the earnings have to be reinvested back in the firm to create growth.
c. there may be cash inflows or outflows associated with the use of debt.
d. all of the above.
Explain
2. Assume that you are advising a small, high-growth bank, which is concerned about the fact that its dividend payout and yield are much lower than other banks. The CEO of the bank is concerned that investors will punish the bank for its dividend policy. What do you think?
a. The bank will be punished for its errant dividend policy.
b. Investors are sophisticated enough for the bank to be treated fairly.
c. The bank will not be punished for its low dividends as long as it tries to convey information to its investors about the quality of its projects and growth prospects.
Explain