Proponents of the Dividend Irrelevance Theory Argue That, All Else

question 13

Multiple Choice

Proponents of the dividend irrelevance theory argue that, all else being equal, an investor's required return and the value of the firm are unaffected by dividend policy, for all of the following reasons, EXCEPT

• A) if dividends do affect value, they do so solely because of their informational content, which signals managements' earnings expectations.
• B) a clientele effect exists which causes a firm's shareholders to receive the dividends that they expect.
• C) investor's are generally risk averse and attach less risk to current as opposed to future dividends or capital gains.
• D) the firm's value is determined solely by the earning power and risk of its assets.