The Optimal Dividend Policy When Dividend Tax Rates Exceed Capital

question 10

True/False

The optimal dividend policy when dividend tax rates exceed capital gains tax rates is to pay dividends only.

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Definitions:

Net Present Value

A calculation that determines the value of a series of future cash flows in today's dollars, used to assess the profitability or viability of an investment or project.

Retained Earnings

The portion of a company's profits not distributed as dividends to shareholders, but instead reinvested in the business.

Risk-Free Rate

The theoretical return on an investment with no risk of financial loss, often represented by the yield on government securities.