Which of the Following Statements About Dividend Policies Is CORRECT

question 53

Multiple Choice

Which of the following statements about dividend policies is CORRECT?

• A) Miller and Modigliani argued that investors prefer dividends to capital gains because dividends are more certain than capital gains. They call this the "bird-in-the-hand" effect.
• B) One reason that companies tend to favor distributing excess cash as dividends rather than by repurchasing stock is that dividends are normally taxed at a lower rate than gains on repurchased stock.
• C) One advantage of dividend reinvestment plans is that they allow shareholders to delay paying taxes on the dividends that they choose to reinvest.
• D) One key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy.
• E) The clientele effect suggests that companies should follow a stable dividend policy.

Understand how budgeting aids in planning, controlling, and coordinating efforts in an organization.

Calculate cash collections based on sales budget and collection patterns.

Understand the components and preparation of the production budget.

Comprehend how direct materials, direct labor, and manufacturing overhead budgets are integrated within the master budget.

---

Definitions:

Groupthink

A psychological phenomenon wherein the desire for conformity within a group results in an irrational or dysfunctional decision-making outcome.

Cohesive

Referring to the property of an element or group to stay together tightly and function in a unified manner.

Groupthink

A psychological phenomenon in which the desire for harmony or conformity within a group results in an irrational or dysfunctional decision-making outcome.

Devil's Advocate

A role assumed by an individual or group in discussions or decision-making processes to challenge ideas and assumptions by presenting a contrary argument.