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

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

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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TRUE OR FALSE

 

Answer as either true or false and provide a reason for why.

 

  1. When a company pays dividends, its share price falls.
  2. Modigliani and Miller proposition II (without taxes) implies that the weighed average cost of capital increases as more debt is issued, since debt make the firm more risky
  3. The empirical findings that more profitable firms have lower debt ratios is consistent with the trade-off theory regarding capital structure.
  4. The WACC formula assumes that the amount of debt issued remains constant.
  5. Other things being equal, buying a put option is the same as selling a call option
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