Which of the Following Statements About Dividend Policies Is CORRECT

question 32

Multiple Choice

Which of the following statements about dividend policies is CORRECT?

• A)Modigliani and Miller argue that investors prefer dividends to capital gains because dividends are more certain than capital gains.They call this the "bird-in-the hand" effect.
• B)One reason that companies tend to avoid stock repurchases is that dividend payments are taxed at a lower rate than gains on stock repurchases.
• C)One advantage of dividend reinvestment plans is that they allow shareholders to avoid paying taxes on the dividends that they choose to reinvest.
• D)One key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy.
• E)The clientele effect suggests that companies should follow a stable dividend policy.

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Definitions:

Weighted Average Method

An inventory costing method that calculates the cost of goods sold and ending inventory based on the weighted average cost of all units available for sale during the period.

Conversion Activities

Activities in manufacturing that convert raw materials into finished goods.

Weighted Average Method

An inventory valuation method that calculates the cost of goods sold and ending inventory based on the average cost of all inventory items.

Overhead Costs

Indirect costs incurred in the running of a business that cannot be directly attributed to any specific product or service.