Chapter 15, Problem 7Q

(1)

Summary Introduction

To explain: The interrelationship for the cost of capital, investment opportunities and new investment with size of firm and executive’s salary.

Introduction:

Cost of capital: The amount or funds or the opportunity cost is that cost which a business uses to make an investment. It is the rate of return which can be generated by investing the same amount of money into different investment having an equal risk rate.

(2)

Summary Introduction

To explain: The implied relationship between dividend policy and stock prices.