Which of the Following Statements Is CORRECT

question 12

Multiple Choice

Which of the following statements is CORRECT?

• A) One advantage of the residual dividend policy is that it leads to a stable dividend payout, which investors like.
• B) An increase in the stock price when a company decreases its dividend is consistent with signaling theory as postulated by MM.
• C) 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.
• D) Stock repurchases make the most sense at times when a company believes its stock is undervalued.
• E) Firms with a lot of good investment opportunities and a relatively small amount of cash tend to have above average payout ratios.

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Definitions:

Value of Money

The purchasing power of money, which can vary over time due to factors like inflation or economic conditions.

Vertical Axis

In graphing, the y-axis upon which variables or values are plotted, typically representing dependent measurements in a chart or graph.

Real Salary

The purchasing power of an individual's income, taking into account the effect of inflation on spending power.

Nominal Salary

The amount of money earned by an employee before any deductions or adjustments for inflation.