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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