Which of the Following Statements Is Correct

question 24

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) Companies may pay too high a price in a large open market repurchase if it takes too long to complete.
• D) An investor's capital gains from selling stock in a repurchase are always taxed at a higher rate than if the distribution were dividends.
• E) The tax code encourages companies to pay dividends rather than reinvest earnings.