Which of the Following Statements About Dividend Policies Is Correct

question 48

Multiple Choice

Which of the following statements about dividend policies is correct?

• A) One reason that companies tend to avoid stock repurchases is that dividend payments are taxed at a lower rate than gains on stock repurchases.
• B) One advantage of dividend reinvestment plans is that they allow shareholders to avoid paying taxes on the dividends that they choose to reinvest.
• C) One key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy.
• D) The clientele effect suggests that companies should follow a stable dividend policy.
• E) Modigliani and Miller argue that investors prefer dividends to capital gains because dividends are more certain than capital gains.They call this the "bird-in-the hand" effect.

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Definitions:

Lead Paint

Paint containing significant levels of lead, used in the past for its durability, but now banned or restricted in many countries due to its toxicity and health risks.

Recall

A process by which a company retrieves and replaces defective or potentially unsafe consumer products from the market.

Water Footprint

The total volume of fresh water used to produce goods or services by a company, individual, or nation.

Heat Energy

The form of energy that is transferred between systems or objects with different temperatures, also known as thermal energy.