The Observation That Cash-Rich Firms Often Use the Funds to Diversify

question 85

Multiple Choice

The observation that cash-rich firms often use the funds to diversify rather than increase dividends indicates that:

• A)Diversification is too costly for individuals
• B)Growth is often valued for the sake of growth alone
• C)Diversification is synergistic
• D)Dividend-pricing models are of questionable value

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Definitions:

Interest Rate

An interest rate is the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan remaining.

Marginal Rate of Substitution

The rate at which a consumer is willing to substitute one good for another, maintaining the same level of utility.

Utility Function

A formula used by economists to map the degree of happiness or satisfaction one derives from consuming quantities of goods and services.

Consumption

The action of using up goods and services to satisfy needs or desires.