The information effect hypothesis implies that increasing ...

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The information effect hypothesis implies that increasing dividends provides a more credible signal
  of higher future earnings than does management's assertion that future earnings will be higher.
 
  Indicate whether the statement is true or false

Question 2

You are analyzing the purchase of new equipment. Since you are not an expert on this type of
  equipment, you hire a consulting firm to make recommendations.
 
  The consultant charged you
  1,500 and recommended the purchase of the latest model from ACME Corp of America. The
  equipment costs 80,000, and it will cost another 10,000 to modify it for special use by your firm.
  The equipment will be depreciated on a straight-line basis over six years with no salvage value.
  You expect the equipment will be sold after three years for 28,000. Use of the equipment will
  require an increase in your company's net working capital of 4,000, but this 4,000 will be
  recovered at the end of year three. The use of the equipment will have no effect on revenues, but it
  is expected to save the firm 50,000 per year in before-tax operating costs. Your company's
  marginal tax rate is 35. What is the terminal cash flow for this project?
  A) 24,500 B) 33,950 C) 37,950 D) (17,000)

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Answer to Question 1

TRUE

Answer to Question 2

C