Define each of the following terms:

a. Optimal distribution policy

b. Dividend irrelevance theory; bird-in-the-hand theory; tax effect theory

c. Signaling hypothesis; clientele effect

d. Residual distribution model; extra dividend

e. Declaration date; holder-of-record date; ex-dividend date; payment date

f. Dividend reinvestment plan (DRIP)

g. Stock split; stock dividend; stock repurchase

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.

c. Some dividend reinvestment plans increase the amount of equity capital available to the firm.