1. We discussed several explanations for dividend levels by various firms. Which of the following would best help achieve the primary objective?
Firms should be reluctant to increase dividends
All of the answers are correct
Taking into account taxes and costs, dividends are irrelevant
Dividend decisions should be made with a perspective on the cost of capital, project analysis, and shareholder value
Signaling should be the most important consideration with dividend policy
2. Sanguillen Corp. showed retained earnings of $400,000 on its balance sheet for 1996. In 1997, the company's earnings per share (EPS) was $3.00 and its dividend paid per share (DPS) was $1.00. The company has 200,000 shares of stock outstanding. What will be the level of retained earnings on the company's 1997 balance sheet?
a. $400,000
b. $500,000
c. $600,000
d. $700,000
e. $800,000