Which of the Following Statements Is CORRECT

question 2

Multiple Choice

Which of the following statements is CORRECT?

• A)The tax code encourages companies to pay dividends rather than retain earnings.
• B)If a company uses the residual dividend model to determine its dividend payments, dividends payout will tend to increase whenever its profitable investment opportunities increase.
• C)The stronger management thinks the clientele effect is, the more likely the firm is to adopt a strict version of the residual dividend model.
• D)Large stock repurchases financed by debt tend to increase earnings per share, but they also increase the firm's financial risk.
• E)A dollar paid out to repurchase stock is taxed at the same rate as a dollar paid out in dividends.Thus, both companies and investors are indifferent between distributing cash through dividends and stock repurchase programs.

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Definitions:

Depreciable Non-current Asset

A long-term asset subject to depreciation, reflecting the asset's consumption, wear and tear, or obsolescence over its useful life.

Unrealised Gain

Profit that has been made on paper due to an increase in the value of an asset but has not yet been realized through a transaction.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against an asset over its useful life, reducing its book value on the balance sheet.