Which of the Following Statements Is Most Correct

question 24

Multiple Choice

Which of the following statements is most correct?

• A) The bird-in-the-hand theory would predict that companies could decrease their cost of equity financing by raising their dividend payout.
• B) The clientele effect can explain why firms often change their dividend policies.
• C) One advantage of adopting a residual distribution policy (with all distributions in the form of dividends) is that it makes it easier for corporations to maintain dividend clienteles.
• D) Answers a and c are correct.
• E) None of the answers above is correct.

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Definitions:

Annual Payments

Payments that are made once a year.

Payout Figure

The total amount paid out to a policyholder in an insurance claim or to an investor in dividends or withdrawals.

Compounded Quarterly

A method of calculating interest where the accumulated interest is added to the principal sum every quarter (every three months), affecting the amount on which future interest is calculated.

Principal

The initial amount of money loaned or invested, excluding any interest or dividends.