High Dividends May Increase Stock Values Due to All of the Following

question 106

Multiple Choice

High dividends may increase stock values due to all of the following reasons EXCEPT

• A) dividends are more certain than capital gains.
• B) higher dividends are used to signal higher expected future earnings.
• C) dividends are used as a tool to minimize agency costs.
• D) higher dividends allow companies to increase their proportion of external equity financing.

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Definitions:

Journal Entries

Recording of financial transactions in a ledger, such that the total debits equals the total credits, reflecting all changes in accounts within a particular accounting period.

Fiscal Year-End

The fiscal year-end is the conclusion of a 12-month or 365-day period that a company uses for accounting purposes and preparing financial statements, which does not necessarily coincide with the calendar year.

Deferred Income Tax Liability

A tax obligation due in the future for income that has been recognized in the financial statements before it is taxable.

Tax Liability

Tax liability refers to the total amount of tax that an individual or entity is obligated to pay to a taxing authority, such as the government, based on income, property, and other applicable factors.