Which of the Following Statements Is CORRECT

question 2

Multiple Choice

Which of the following statements is CORRECT?

• A) Firms with a lot of good investment opportunities and a relatively small amount of cash tend to have above average payout ratios.
• B) One advantage of the residual dividend policy is that it leads to a stable dividend payout, which investors like.
• C) An increase in the stock price when a company decreases its dividend is consistent with signaling theory as postulated by MM.
• D) If the "clientele effect" is correct, then for a company whose earnings fluctuate, a policy of paying a constant percentage of net income will probably maximize the stock price.
• E) Stock repurchases make the most sense at times when a company believes its stock is undervalued.

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Definitions:

Franchisee

An individual or company that is granted the right by a franchisor to run a business under the franchisor's trademark and business model.

Family Business

A commercial organization in which decision-making is influenced by multiple generations of a family related by blood or marriage who are closely identified with the firm.

Financial Success

Achieving a desirable financial state typically characterized by profitability, stability, and the ability to sustain and grow wealth.

Common Goal

A shared objective or target that a group of individuals or an organization aims to achieve together.