Everything Else Equal, If a Firm Increases the Dividend That

question 33

Multiple Choice

Everything else equal, if a firm increases the dividend that it pays from $4 to $5:

• A)more money will be available to invest in capital budgeting projects.
• B)its future growth rate will decrease.
• C)demand for the stock will decrease among investors who prefer to receive current income from their investments.
• D)the firm should expect many of the investors who held the stock prior to the increase to sell their stock
• E)its operating income will increase.

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Definitions:

Required Return

The minimum return an investor anticipates or requires from an investment to make it worthwhile.

Ackerman Geometry

The front-end setup that allows a vehicle to steer so that the tires track freely during a turn. During a turn, the inboard wheel on a steer axle has to track a tighter circle than the outer wheel. Ackerman geometry is also known as toe-out during turns and it allows the inner and outer wheels to turn at different angles so that both wheels can roll through a turn without tire scrubbing.

Toe-out

A wheel alignment term where the front of the wheels are pointed slightly outward, which can affect handling and tire wear.

Steering Control Arm

The forged link that connects a drag link to the steering knuckle. Also known as a steering arm and a control arm.