Assume That Stockholders Have Exactly the Same Information as the Managers

question 34

Multiple Choice

Assume that stockholders have exactly the same information as the managers who make the financial decisions of the firm.If the managers always make rational investment decisions that is, they purchase only positive net present value capital budgeting projects which of the following dividend policies should investors prefer the managers follow? Consider everything else is equal.

• A)residual dividend
• B)constant payout ratio
• C)stable, predictable dividend
• D)low regular dividend plus extras
• E)It shouldn't matter which dividend policy the managers follow because each policy should maximize the value of the firm.

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Definitions:

Unadjusted Trial Balance

A preliminary list of all accounts and their balances in the general ledger before any adjusting entries are made to prepare financial statements.