In Which of the Following Scenarios Might a Dividend or Stock

question 59

Multiple Choice

In which of the following scenarios might a dividend or stock repurchase increase firm value?

• A)The firm makes a big dividend payment to its shareholders when management realizes that it is close to bankruptcy.
• B)The firm issues debt in order to make the dividend payments or repurchase the stock.
• C)The firm repurchases its shares in lieu of undertaking some projects with small, positive NPVs.
• D)Dividend payments and stock repurchases neither increase nor decrease firm value.

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Definitions:

Utility Per Dollar

Represents the amount of satisfaction or pleasure received per unit of expenditure.

Good

A tangible or intangible product that can satisfy a need or desire, and is transferable from one person to another.

Budget Constraint

The limits imposed on household choices by income, wealth, and product prices.

Price of Gasoline

The cost per unit (typically per liter or gallon) of gasoline, which fluctuates based on factors like crude oil prices, taxes, and supply and demand dynamics.