The Manager of Montreal Trustco Has Noticed That as the Dividend

question 29

Multiple Choice

The manager of Montreal Trustco has noticed that as the dividend payout ratio of the firm increases the value of the firm's equity declines.This is most likely due to:

• A)The firm's return on equity is lower than the required return on equity
• B)The firm's return on equity is higher than the required return on equity
• C)The firm's return on equity is equal to the required return on equity
• D)None of the above is a likely explanation

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Definitions:

Conformity

The act of changing one's behavior or beliefs in order to match those of others, typically as a result of real or imagined group pressure.

Door-In-The-Face Technique

A compliance method whereby a large request is made knowing it will be refused so that a subsequent, smaller request is more likely to be accepted.

Large First Request

A persuasion technique where a more significant request is made initially, expected to be refused, followed by a smaller request, which seems more reasonable by comparison.

Social Norms

Unwritten rules that govern the behavior of individuals within a society or group, guiding what is considered acceptable or unacceptable behavior.