Which of the Following Statements About Dividend Policies Is CORRECT

question 20

Multiple Choice

Which of the following statements about dividend policies is CORRECT?

• A) Miller and Modigliani argued that investors prefer dividends to capital gains because dividends are more certain than capital gains.They call this the "bird-in-the-hand" effect.
• B) One reason that companies tend to favor distributing excess cash as dividends rather than by repurchasing stock is that dividends are normally taxed at a lower rate than gains on repurchased stock.
• C) One advantage of dividend reinvestment plans is that they allow shareholders to delay paying taxes on the dividends that they choose to reinvest.
• D) One key advantage of the residual dividend model 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:

Hypertension

A chronic medical condition where the blood pressure in the arteries is persistently elevated, posing health risks.

False Consensus Effect

The cognitive bias to overestimate how much other people share our beliefs, attitudes, and behaviors.

Conspicuous

Easily seen or noticed; attracting attention.

Drunkenness

A state of intoxication or impairment resulting from the consumption of alcohol.