What Does the Traditional View of Dividend Policy Say About

question 2

Multiple Choice

What does the traditional view of dividend policy say about a higher payout ratio?

• A) It will depress the share value as shareholders must engage in the cost of searching out new investment opportunities.
• B) It will artificially depress the share value of a company as the growth in dividends will be lower when the absolute amount of dividends is higher.
• C) It will increase the share value of a company as shareholders will be attracted to the investment flexibility provided by liquidity.
• D) It will depress the share value of a company as transactions cost must be subtracted from earnings for those shareholders who wish to retain their investment in the company.
• E) It will increase the share value of a company as the rate of return demanded by investors will drop as the uncertainty of receiving dividends diminishes.

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Definitions:

Opportunity Set

In finance and economics, the range of choices available to investors and consumers, including different combinations of goods, services, or assets that can be chosen for investment or consumption.

Gardenburgers

A brand of meatless burgers, often made from vegetables, grains, and legumes, targeting vegetarians and health-conscious consumers.

Budget Constraint

The restriction on the range of goods and services a consumer can purchase based on their income and the cost of these items.

Gardenburger

A brand known for its vegetarian burgers and meatless products, catering to those seeking vegetarian options.