Answer Happy

Which statements are true on each
item?

1. [S1] Preference shares are considered a hybrid type of financing
because dividends paid to preference shareholders are tax
deductible. [S2] Cumulative preference shares require the payment
of dividends but the timing of payment may be adjusted according to
the wishes of the board of directors.
2. [S1] By executing a rights offering, we acknowledge the
preemptive right of current ordinary shareholders. [S2] When an
initial public offering has been made, the underwriter would remit
to the issuing entity cash equal to the total issue price less any
issuance cost chargeable against the former.
3. [S1] When the entity issues a long-term debt instrument, it
exposes itself to solvency risk. [S2] When the board of directors
agreed to regularly issue stock dividends, it faces liquidity
risk.
4. [S1] The dividend decision generally involves the same
factors as the earnings retention decision. [S2] Under the Dividend
Relevance Theory, dividends are valued more than capital gains.