Which of the Following Statements Is Most Correct

question 9

Multiple Choice

Which of the following statements is most correct?

• A) If the dividend irrelevance theory (which is associated with the names Modigliani and Miller) were exactly correct, and if this theory could be tested with "clean" data, then we would find, in a regression of dividend yield and capital gains, a line with a slope of -1.0.
• B) The tax preference and bird-in-the-hand theories lead to identical conclusions as to the optimal dividend policy.
• C) If a company raises its dividend by an unexpectedly large amount, the announcement of this new and higher dividend is generally accompanied by an increase in the stock price. This is consistent with the bird-in-the-hand theory, and Modigliani and Miller used these findings to support their position on dividend theory.
• D) If it could be demonstrated that a clientele effect exists, this would suggest that firms could alter their dividend payment policies from year to year to take advantage of investment opportunities without having to worry about the effects of changing dividends on capital costs.
• E) Each of the statements above is false.

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Definitions:

T-Table Values

Values found in a table that correspond to the T-Distribution, used for hypothesis testing in statistics, especially when the sample size is small and the population standard deviation is unknown.

Confidence Level

The probability that a confidence interval will capture the population parameter in repeated samples.

Simple Linear Regression

A mathematical technique that represents the association between a single independent variable and a dependent variable through a linear formula.

API Gravity

A measure used to quantify the density of petroleum liquids relative to water, indicating how heavy or light the petroleum is.