If the Modigliani and Miller Hypothesis About Dividends Is Correct,and

question 52

Multiple Choice

If the Modigliani and Miller hypothesis about dividends is correct,and if one found a group of companies which differed only with respect to dividend policy,which of the following statements would be most correct?

• A) The residual dividend model should not be used,because it is inconsistent with the MM dividend hypothesis.
• B) The total expected return,which in equilibrium is also equal to the required return,would be higher for those companies with lower payout ratios because of the greater risk associated with capital gains versus dividends.
• C) If the expected total return of each of the sample companies were divided into a dividend yield and a growth rate,and then a scatter diagram (or regression)analysis were undertaken,then the slope of the regression line (or b in the equation D₁/P₀ = a + b(g))would be equal to +1.0.
• D) None of the above statements is true.
• E) All of the above statements are true.

Grasp the fundamentals of net exports and their implications on a country's economy.

Distinguish between nominal and real exchange rates and their computations.

Explain the factors leading to currency appreciation and depreciation.

Analyze the relationship between domestic saving, domestic investment, and international capital flows.

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Definitions:

FASB/IASB Exposure Draft

A draft report proposed by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) for public comment on proposed changes to accounting standards.

Financial Statements

Reports that provide detailed information about a company's financial status, including balance sheets, income statements, and cash flow statements.

Operating Lease

An agreement enabling a party to rent an asset without the intention or requirement to purchase it at the end of the lease term.

Lessee's Income Statement

An income statement showing the financial results of a lessee's operations, including the impact of leasing costs.