A fiRm Unexpectedly Decreases Its Dividend Payout and Its Stock

question 144

Multiple Choice

A firm unexpectedly decreases its dividend payout and its stock price falls. The information content effect at least partially explains the fall in stock price since

• A) An unexpected decrease in dividends means management is signaling that the firm has no positive NPV projects in which to invest.
• B) Investors will always react unfavourable to changes in dividends.
• C) Investors react to the change as new information regarding expected future dividends.
• D) This unexpected decrease may likely be viewed as an attempt by management to manipulate the stock price.
• E) Unexpected changes in dividends will not affect stock prices if the firm has a written dividend policy.

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Definitions:

Acetyl-CoA

A molecule that plays a key role in metabolism, serving as a building block for biosynthetic processes and involved in the cycle of energy production.

Citric Acid Cycle

A series of chemical reactions used by all aerobic organisms to release stored energy through the oxidation of acetyl-CoA derived from carbohydrates, fats, and proteins into carbon dioxide and chemical energy in the form of ATP.

Final Reaction

The last in a series of chemical reactions, often resulting in the formation of the desired product.

Citric Acid Cycle

The Citric Acid Cycle, also known as the Krebs cycle, is a series of chemical reactions used by all aerobic organisms to release stored energy through the oxidation of acetyl-CoA.