ANSWER THE FOLLOWING QUESTIONS CORRECTLY

31. Pecking Order Theory. Alpha Corp. and Beta Corp. both produce turbo encabulators. Both companies’ assets and operations are growing at the same rate, and their annual capital expenditures are about the same. However, Alpha Corp. is the more efficient producer and is consistently more profitable. According to the pecking order theory, which company should have the higher debt ratio? Explain.

19. Dividend Policy. Here are several assertions about typical corporate dividend policies. Which of them are true? Write out a corrected version of any false statements.

a. Most companies set a target dividend payout ratio.

b. They set each year’s dividend equal to the target payout ratio times that year’s earnings.

c. Managers and investors seem more concerned with dividend changes than dividend levels.

d. Managers often increase dividends temporarily when earnings are unexpectedly high for a year or two