1. Which statement is FALSE?

a. Any information or signaling effect of the dividend would occur on the declaration date.

b. A stock split is a large stock dividend so that you might have twice as many shares with each share being worth half as much.

c. The stock price should fall by the amount of the dividend on the payment date.

d. If you invest through a Dividend Reinvestment Plan, you may be taxed on dividends even if you never receive the cash.

2. Which is NOT a reason why the costs of debt and equity might increase at an increasing rate as the level of debt rises?

a) The firm’s best employees begin to leave

b) Managers start accepting positive NPV projects

c) The firm must pay higher legal and accounting costs

d) Assets may be sold at below market prices during liquidation