Answer as either true or false and provide a reason for why.   When a company pays dividends, its share price falls.

Suppose that a new government is elected and it changes the law applying to firms to:• Allow dividend payments to be tax deductible• Stop interest expense on debt from being tax deductibleHolding other factors constant, and assuming that firms seek to maintain an optimal capital structure in accordance with trade-off theory, what would you expect to happen to the debt ratio of a firm with both equity and debt in its capital structure?a. An increase in the debt ratiob. A decrease in the debt ratioc. The debt ratio would be unchangedd. The debt ratio would doublee. None of the above or it is not possible to say

Which of the following would reduce a firm's WACC after tax? a. A firm invests in an average-risk project using equity, rather than debt financing. b. A supermarket chain decides to establish hardware stores which increases its systematic risk. c. A firm issues shares and uses the proceeds to pay off a bank loan. d. A firm issues bonds and uses the proceeds to repurchase stock. e. A firm significantly improves its operating cost control to boost profits.

Generally speaking, the cost of debt is cheaper than the cost of equity. Does it imply that a firm should increase its debt-to-equity ratio to as high as possible such that its corporate cost of capital can be minimized?