Which of the Following Statement Completions Is Correct? If Investors

question 15

Multiple Choice

Which of the following statement completions is correct? If investors prefer dividends to capital gains, then

• A) The equilibrium return, rs, will not be affected by a change in dividend policy because tax effects will offset these preferences.
• B) rs will decrease as dividends are reduced.
• C) rs will increase as dividends are reduced.
• D) rs will decrease as the retention rate increases.
• E) Dividend policy as determined by the residual dividend model is the only dividend policy which will maximise the price per share of ordinary equity.

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Definitions:

Critical

In context, refers to something of great importance or a situation/condition being especially significant or perilous.

Discourage

To dissuade or attempt to dissuade someone from doing something by instilling doubt or fear.

Networking

The activity of interacting with others to exchange information and develop professional or social contacts.

Peers

Individuals or entities that are at a similar level or position, often used in reference to colleagues or companies in the same industry.