Which of the Following Statements Is CORRECT

question 8

Multiple Choice

Which of the following statements is CORRECT?

• A) If a company has a 2-for-1 stock split, its stock price should roughly double.
• B) Capital gains earned on shares repurchased are taxed less favorably than dividends, which is why companies typically pay dividends and avoid share repurchases.
• C) often, a company's stock price will rise when it announces that it plans to commence a share repurchase program. Such an announcement could lead to a stock price decline, but this does not normally happen.
• D) Stock repurchases increase the number of outstanding shares.
• E) The clientele effect is the best explanation for why companies tend to vary their dividend payments from quarter to quarter. Answer: c is correct, but perhaps the easiest way to answer this question is to eliminate the other choices, which are obviously wrong.

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