If the Clientele Effect Holds, Then fiNancial Managers Cannot Increase

question 375

True/False

If the clientele effect holds, then financial managers cannot increase the demand (and therefore the
market value) of their firms' shares by increasing the rate of dividend payout.

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Definitions:

Target Payout Ratio

The proportion of earnings a company plans to distribute to its shareholders as dividends, often expressed as a percentage.

Internal Rate

Short for Internal Rate of Return (IRR), it's a financial metric used to estimate the profitability of potential investments, calculated as the rate of return that sets the net present value of all cash flows from the investment equal to zero.

Required Return

The minimum return an investor expects to achieve on an investment, taking into account the risk level and other available opportunities.

Homemade Dividend

A concept where investors create their own dividend stream by selling a portion of their portfolio of equities instead of relying on company-issued dividends.