14-3 What is the difference between a stock dividend and a stock split? As a stockholder, would you prefer to see your company declare a 100% stock dividend or a 2-for-1 split? Assume that either action is feasible.

14-4 One position expressed in the financial literature is that firms set their dividends as a residual after using income to support new investments. Explain what a residual policy implies (assuming that all distributions are in the form of dividends), illustrating your answer with a table showing how different investment opportunities could lead to different dividend payout ratios.

14-5 Indicate whether the following statements are true or false. If the statement is false, explain why.

15-1 Define each of the following terms:

a. Capital structure; business risk; financial risk

b. Operating leverage; financial leverage; break-even point

c. Reserve borrowing capacity

15-2 What term refers to the uncertainty inherent in projections of future ROIC?

15-3 Firms with relatively high nonfinancial fixed costs are said to have a high degree of what?

15-4 “One type of leverage affects both EBIT and EPS. The other type affects only EPS.” Explain this statement.

15-5 Why is the following statement true? “Other things being the same, firms with relatively stable sales are able to carry relatively high debt ratios.”

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