Which of the Following Statements Is CORRECT

question 59

Multiple Choice

Which of the following statements is CORRECT?

• A) Historically,the tax code has encouraged companies to pay dividends rather than retain earnings.
• B) If a company uses the residual dividend model to determine its dividend payments,dividend payout will tend to increase whenever its profitable investment opportunities increase relatively rapidly.
• C) The more a firm's management believes in the clientele effect,the more likely the firm is to adhere strictly to the residual dividend model.
• D) Large stock repurchases financed by debt tend to increase expected earnings per share,but they also tend to increase the firm's financial risk.
• E) A dollar paid out to repurchase stock has the same tax benefit as a dollar paid out in dividends.Thus,both companies and investors should be indifferent between distributing cash through dividends and stock repurchase programs.

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Definitions:

Specific Identification

Specific identification is an inventory valuation method that tracks the cost of individual items in inventory and matches those costs with the items' actual sale.

Inventory System

A method for tracking the quantities, locations, and statuses of products a company has in stock, both for sales and production purposes.

Computerized

Systems or processes that are performed or managed by computers, typically involving automation of manual tasks.

Cost Flow Assumption

An accounting method used to determine the cost of goods sold and ending inventory, such as FIFO, LIFO, or average cost.