“Other things being the same, firms with relatively stable sales are able to carry relatively high debt ratios.”

  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.   a.If a firm repurchases its stock in the open market, the shareholders who tender the stock are subject to capital gains taxes.   b.If you own 100 shares in a company’s stock and the company’s stock splits 2-for-1, then you will own 200 shares in the company following the split.