1. Quick Mart has been paying a quarterly dividend of $1.20 a share. Which of the following are valid reasons for the firm to reduce or eliminate these dividends?
I. The firm is on the verge of violating a bond restriction.
II. The firm wants to save cash for an acquisition with a 40 percent premium.
III. The firm can raise new capital easily at a very low cost.
IV. Congress just changed the tax laws eliminating all taxes on capital gains.
Answers:
I and IV only
Could you explain why I and IV are the answers and why other choices are incorrect?
2. A stock is expected to earn 23 percent in a boom economy and 11 percent in a normal economy. There is a 39 percent chance the economy will boom and a 61.0 percent chance the economy will be normal. What is the standard deviation of these returns?
6.88 Percent
5.85 Percent
7.66 Percent
7.00 Percent