Which of the Following Statements Is Correct

question 57

Multiple Choice

Which of the following statements is correct?

• A) An open-market dividend reinvestment plan will be most attractive to companies that need new equity and would otherwise have to issue additional shares of common stock through investment bankers.
• B) Stock repurchases tend to reduce financial leverage.
• C) If a company declares a 2-for-1 stock split, its stock price should roughly double.
• D) One advantage of adopting the residual dividend policy is that this makes it easier for corporations to meet the requirements of Modigliani and Miller's dividend clientele theory.
• E) If a firm repurchases some of its stock in the open market, then shareholders who sell their stock for more than they paid for it will be subject to capital gains taxes.

---

Definitions:

Standstill Agreement

A contract between a company and its creditors where the creditors agree not to increase the level of their claims, pursue further action, or demand payment for a certain period of time, usually during restructuring.

Minority Stake

An ownership position in a company that is less than 50 percent, allowing the holder to have a share in the profits but not control decisions.

Target Firm

A company that has been identified as a potential acquisition target by another company or investor.

Equity Carve-Out

The sale of stock in a wholly owned subsidiary via an IPO.