Which of the Following Statements Is Most Correct

question 40

Multiple Choice

Which of the following statements is most correct?

• A) The tax preference theory states that, all else equal, investors prefer stocks that pay low dividends because retained earnings can lead to capital gains that are taxed preferentially.
• B) An increase in the cost of equity capital (rs) when a company announces an increase in its dividend per share would be consistent with the bird-in-the-hand theory.
• C) An increase in the stock price when a company decreases its dividend is consistent with the signaling theory.
• D) A dividend policy that involves paying a consistent percentage of net income is the best policy if the "clientele effect" is correct.
• E) Both statements a and d are correct.

---

Definitions:

Lower Labor Productivity

A condition where there is a decrease in the amount of goods or services produced per unit of labor.

Technology Production

The process of designing, manufacturing, and introducing new technological goods or services.

Equilibrium Price

The cost at which the volume of goods available equals the volume desired by buyers in the market.

Equilibrium Quantity

The quantity of a good or service demanded and supplied at the equilibrium price, where market supply and demand balance each other.