1. When the impact of taxes is considered for firm valuation:
A. the value of the firm will be maximized at a debt-to-equity ratio of 40 percent
B. the overall cost of capital increases
C. the value of the firm increases by the present value of the tax shield
D. none of the above
2. Which of the following statements is FALSE?
A. Based on the clientele effects, dividend policy is irrelevant
B. Because of flotation costs, a low-dividend policy is best.
C. Because of the desire for current income, a high-dividend policy is best
D. Because of lower capital gains tax rates, a high-dividend policy is best