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:

Weak Justification

An insufficient or unconvincing reason or rationale to support an action, belief, or argument.

Dissonance Level

Refers to the degree of discomfort or conflict someone feels when holding two or more contradictory beliefs, ideas, or values at the same time.

Cognitive Dissonance

A psychological discomfort experienced when holding two or more conflicting beliefs, values, or attitudes simultaneously.

Uncomfortable Tension

A psychological state of discomfort arising from contradictory beliefs, thoughts, or feelings.