Which of the Following Statements Best Describes the Theories of Investors

question 45

Multiple Choice

Which of the following statements best describes the theories of investors' preferences for dividends?

• A) Modigliani and Miller argue that investors prefer dividends to capital gains.
• B) The bird-in-hand theory suggests that a company can reduce its cost of equity capital by reducing its dividend payout ratio.
• C) The tax preference theory suggests that a company can increase its stock price by increasing its dividend payout ratio.
• D) One key advantage of a residual distribution policy (with all distributions as dividends) 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:

Regression

A statistical method used to estimate the relationships among variables, typically to forecast a dependent variable based on one or more independent variables.

Multiple Correlation

A statistical measure that describes the extent of association between more than two variables.

Researchers

Individuals who conduct detailed investigations in order to discover new information or reach new understandings.

Significant Results

Results obtained from statistical analysis that are unlikely to have occurred due to chance alone, indicating a meaningful difference or relationship.