1. Would it ever be rational for a firm to borrow money in order to pay dividends?
2. If Congress increased the personal tax rate on dividends and capital gains but simultaneously reduced the tax rate on corporate income, what effect would this have on the average company’s capital structure?
3. Company X and Company Y have debt to total asset ratios of 39 percent and 53 percent and returns on total assets of 12 percent and 10 percent, respectively. Calculate, compare and comment on their return on equity.