1. The manager of Montreal Trustco has noticed that as he increases the dividend payout ratio, the value of the firm's equity increases. This is most likely due to:
a. The firm’s return on equity is higher than the required return on equity
b. None of the above is a likely explanation.
c. The firm’s return on equity is lower than the required return on equity
d. The firm’s return on equity is equal to the required return on equity
2. Use the following statements to answer this question:
I. The WACC is the most appropriate rate to discount future cash flows of average risk.
II. The investment opportunities schedule uses WACC as a threshold for investment.
a. I and II are correct.
b. I is correct and II is incorrect.
c. I is incorrect and II is correct.
d. I and II are incorrect.