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:

Donated

The act of giving something voluntarily without the expectation of compensation, often for charity or to benefit another person or group.

Groupthink

A phenomenon occurring within a group of people, where the desire for harmony or conformity results in an irrational or dysfunctional decision-making outcome.

Critical Ideas

Important or influential concepts that have significant impact on thinking or practice in a particular field.

Polarization

The phenomenon in which waves, such as light waves, are restricted to certain directions of vibration, often leading to a division in opinion or a specific orientation of molecules.