Which of the Following Statements Is CORRECT

question 14

Multiple Choice

Which of the following statements is CORRECT?

• A)Under the tax laws as they existed in 2008, a dollar received for repurchased stock must be taxed at the same rate as a dollar received as dividends.
• B)One nice feature of dividend reinvestment plans (DRIPs) is that they reduce the taxes investors would have to pay if they received cash dividends.
• C)Empirical research indicates that, in general, companies send a negative signal to the marketplace when they announce an increase in the dividend, and as a result share prices fall when dividend increases are announced.The reason is that investors interpret the increase as a signal that the firm has relatively few good investment opportunities.
• D)If a company wants to raise new equity capital rather steadily over time, a new stock dividend reinvestment plan would make sense.However, if the firm does not want or need new equity, then an open market purchase dividend reinvestment plan would probably make more sense.
• E)Dividend reinvestment plans have not caught on in most industries, and today about 99% of all companies with DRIPs are utilities.

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Definitions:

Preferred Stock

Preferred stock is a class of shares that offers dividends and ownership in a company but typically does not confer voting rights, with dividends received before common shareholders.

Par Value

The nominal or face value of a bond, share of stock, or coupon as indicated on a certificate or instrument.

Net Income

The total profit or loss of a company after all revenues, costs, and expenses have been deducted, often referred to as the bottom line.

Earnings Per Share

A financial metric that shows the portion of a company's profit allocated to each outstanding share of common stock.