Which of the Following Statements Is Correct

question 57

Multiple Choice

Which of the following statements is correct?

• A) An open-market dividend reinvestment plan will be most attractive to companies that need new equity and would otherwise have to issue additional shares of common stock through investment bankers.
• B) Stock repurchases tend to reduce financial leverage.
• C) If a company declares a 2-for-1 stock split, its stock price should roughly double.
• D) One advantage of adopting the residual dividend policy is that this makes it easier for corporations to meet the requirements of Modigliani and Miller's dividend clientele theory.
• E) If a firm repurchases some of its stock in the open market, then shareholders who sell their stock for more than they paid for it will be subject to capital gains taxes.

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Definitions:

Long-Term Debt

Borrowings and financial obligations lasting over one year, used to finance operations or acquisitions.

Capital Budgeting

The method by which a business analyzes prospective large-scale projects or investments.

Borrowing Power

The maximum amount of money a person or entity can borrow based on their financial situation.

Discount Rate

Discount Rate is the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.