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.

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Definitions:

Wrongful Dismissal

A doctrine giving workers legal protections against termination without cause.

Profit Sharing

A corporate strategy where employees receive a share of the company's profits, typically distributed annually or quarterly, as part of their compensation.

Merit Pay System

A merit pay system is a compensation approach where employees are rewarded based on their performance and achievements, typically assessed through performance evaluations.

Bonus Pay Plans

Compensation methods that reward employees with extra pay based on performance, successful achievement of objectives, or company profitability.