Which of the Following Statements Is CORRECT

question 17

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) The stronger management thinks the clientele effect is, the more likely the firm is to adopt a strict version of the residual dividend model.
• C) Large stock repurchases financed by debt tend to increase earnings per share, but they also increase the firm's financial risk.
• D) 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.
• E) The tax code encourages companies to pay dividends rather than retain earnings.

---

Definitions:

Trade

The exchange of goods and services between people or entities, often in return for money.

Great Goals

Objectives that are ambitious, clear, and challenging, yet achievable, and that motivate individuals or teams to perform at their highest levels.

Specific

Clearly defined or identified; precise or particular in nature.

Timely

Occurring at a suitable or opportune moment, often with the implication of being precisely timed for its purpose.