Which of the Following Statements Is CORRECT

question 32

Multiple Choice

Which of the following statements is CORRECT?

• A) Under the tax laws as they existed in 2010, a dollar received by an individual taxpayer as interest income is taxed at the same rate as a dollar received as dividends.
• B) One nice feature of dividend reinvestment plans (DRIPs) is that they reduce the taxes investors would have to pay if they received cash dividends.
• C) Empirical research indicates that, in general, companies send a negative signal to the marketplace when they announce an increase in the dividend. As a result, share prices fall when dividend increases are announced because investors interpret the increase as a signal that the firm expects fewer good investment opportunities in the future.
• D) If a company needs to raise new equity capital, a new stock dividend reinvestment plan would make sense. However, if the firm does not need new equity, then an open market purchase dividend reinvestment plan would probably make more sense.
• E) Dividend reinvestment plans have not caught on in most industries, and today over 99% of all DRIPs are offered by utilities.

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Definitions:

Life Insurance

A financial product that provides a monetary payout to beneficiaries upon the death of the insured person.

Health Care

The maintenance or improvement of health via the prevention, diagnosis, treatment, recovery, or cure of disease, illness, injury, and other physical and mental impairments in people.

Current Liability

A company's debts or obligations that are due to be paid to creditors within one year.

Note Payable

An obligation in the form of a written promissory note requiring the borrower to repay the lender a specific sum of money on demand or at a predetermined date.