Which of the Following Statements Is Correct

question 37

Multiple Choice

Which of the following statements is correct?

• A) Capital gains earned in a share repurchase are taxed less favorably than dividends; this explains why companies typically pay dividends and avoid share repurchases.
• B) Very often, a company's stock price will rise when it announces that it plans to commence a share repurchase program because a repurchase announcement usually is seen as a positive signal from management.
• C) Stock repurchases increase the number of outstanding shares.
• D) The clientele effect is the best explanation for why companies tend to vary their dividend payments from quarter to quarter.
• E) If a company has a 2-for-1 stock split, its stock price should roughly double.

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Definitions:

Direct Write-off Method

An accounting method where bad debts or uncollectible accounts receivable are directly written off against income at the time they are deemed uncollectible.

Bad Debt Expense

The cost associated with accounts receivable that a company is unable to collect, considered as an expense on the income statement.

Accounts Receivable Turnover Ratio

A financial metric that measures how efficiently a company collects revenue from its credit sales, calculated by dividing net credit sales by average accounts receivable.

Gross Sales

The total sales revenue of a business before any deductions are made for returns, allowances, or discounts.