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.

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Definitions:

General Partner

A partner in a partnership who has unlimited personal liability for the debts of the business and takes part in its day-to-day management.

Limited Partnership

A business structure where one or more partners have limited liability and are not involved in the day-to-day management, juxtaposed with at least one general partner who has unlimited liability.

RULPA

The Revised Uniform Limited Partnership Act, which is a statute that governs limited partnerships in the states that have enacted it.

Limited Partnership Certificate

A document that formally establishes the existence of a limited partnership and outlines its structure and operating principles.