1. Which statement is TRUE?

a) Under a sale and leaseback arrangement, the seller of the property is the lessor and the buyer is the lessee.

b) A sale and leaseback arrangement is a type of operating lease.

c) Operating leases help to shift the risk of obsolescence from the user to the lessor.

d) Capital Leases are a form of Off-balance sheet financing

2. Which of the following statements is correct?

a. If a firm follows the residual dividend policy, then a sudden increase in the number of profitable projects is likely to reduce the firm’s dividend payout during that year.

b. The clientele effect can explain why many firms change their dividend policies so often.

c. One advantage of adopting the residual dividend policy is that this policy makes it easier for corporations to develop a specific and well-identified dividend clientele.

d. Stock dividends reduce the amount of equity on the firm’s balance sheet.