Reference no: EM131545192

1. The dividend growth model can be used to compute the cost of equity for a firm in which of the following situations?

I. firms that pay a constant dividend

II. firms that pay no dividend

III. firms that pay dividend with a constant rate of increase

IV. firms that pay dividend with a constant rate of decrease

I and II only

II and III only

I and III only

I, II and III only

I, III and IV only

2. The average of a firm's cost of equity and aftertax cost of debt that is weighted based on the firm's capital structure is commonly called the __________

subjective cost of capital.

structured cost of capital.

weighted capital gains rate.

weighted average cost of capital.

reward to risk ratio.

3. Mary purchased 1,000 shares of New Way stock on Wednesday, July 7. John purchased 500 shares of New Way stock on Thursday, July 8. New Way declared a dividend on June 20 to shareholders of record on Thursday, July 15 and payable on August 1. Which one of the following statements concerning the dividend paid on August 1 is correct given this information?

Neither Mary nor John is entitled to the dividend.

John is entitled to the dividend but Mary is not.

Mary is entitled to the dividend but John is not.

Both Mary and John are entitled to the dividend.

Both John and Mary are entitled to one-half of the dividend amount.