Which of the Following Statements About Dividend Policies Is Correct

question 40

Multiple Choice

Which of the following statements about dividend policies is correct?

• A) 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.
• 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) The 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.

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Definitions:

Efficiency Wages

Wages that are deliberately set above the market equilibrium to increase productivity by attracting better applicants, reducing turnover, or increasing worker effort.

Equilibrium Level

The state in which market supply and demand balance each other, and as a result, prices become stable.

Structural Unemployment

A situation where there is a mismatch between the skills workers have and the skills needed by employers due to technological changes or other factors.

Labor Unions

Organizations formed by workers from related fields that work for the common interest of its members in terms of wages, working hours, working conditions, and other employment matters.