Which of the Following Statements Is CORRECT

question 59

Multiple Choice

Which of the following statements is CORRECT?

• A) Historically,the tax code has encouraged companies to pay dividends rather than retain earnings.
• B) If a company uses the residual dividend model to determine its dividend payments,dividend payout will tend to increase whenever its profitable investment opportunities increase relatively rapidly.
• C) The more a firm's management believes in the clientele effect,the more likely the firm is to adhere strictly to the residual dividend model.
• D) Large stock repurchases financed by debt tend to increase expected earnings per share,but they also tend to increase the firm's financial risk.
• E) A dollar paid out to repurchase stock has the same tax benefit as a dollar paid out in dividends.Thus,both companies and investors should be indifferent between distributing cash through dividends and stock repurchase programs.

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Definitions:

Average Total Cost

The total cost of production (fixed plus variable costs) divided by the quantity of output produced.

Marginal Cost

The increase in expense from creating one more unit of a product or service.

Total Cost

The total cost of production, encompassing both variable and fixed expenses.

Average Cost

The total cost of production divided by the number of goods produced, representing the cost on average of producing each unit of output.