Which of the Following Statements Is Correct

question 29

Multiple Choice

Which of the following statements is correct?

• A) One disadvantage of dividend reinvestment plans is that they increase transactions costs for investors who want to increase their ownership in the company.
• B) One advantage of dividend reinvestment plans is that they enable investors to postpone paying taxes on the dividends credited to their account.
• C) Stock repurchases can be used by a firm that wants to increase its debt ratio.
• D) One advantage of an open market dividend reinvestment plan is that it provides new equity capital and increases the shares outstanding.

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year, calculated as current assets divided by current liabilities.

Earnings Before Interest

An indicator of a company's profitability calculated by subtracting all expenses except interest from revenues, commonly referred to as EBIT.

Tax (EBIT)

Taxation calculated on Earnings Before Interest and Taxes, representing the income tax expense charged on a company's operating profit.

Horizontal Analysis

A financial analysis technique that compares historical financial data over a series of reporting periods to identify trends and growth patterns.