Which of the Following Statements Is CORRECT

question 17

Multiple Choice

Which of the following statements is CORRECT?

• A) The tax code encourages companies to pay dividends rather than retain earnings.
• B) If a company uses the residual dividend model to determine its dividend payments, dividends payout will tend to increase whenever its profitable investment opportunities increase.
• C) The stronger management thinks the clientele effect is, the more likely the firm is to adopt a strict version of the residual dividend model.
• D) Large stock repurchases financed by debt tend to increase earnings per share, but they also increase the firm’s financial risk.
• E) A dollar paid out to repurchase stock is taxed at the same rate as a dollar paid out in dividends. Thus, both companies and investors are indifferent between distributing cash through dividends and stock repurchase programs.

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Definitions:

Protein Synthesis

The biological process through which cells build or synthesize new proteins from amino acids.

Nonmembranous Organelles

Organelles in cells that are not enclosed within membranes, such as ribosomes and centrioles.

Surface Area

The total area that the surface of an object occupies, often relevant in processes such as absorption and evaporation.

Microvilli

Tiny projections found on the surface of some cells that increase the surface area for absorption.