Which of the Following Statements Is Correct

question 112

Multiple Choice

Which of the following statements is correct?

• A) A key advantage of the residual dividend policy is that it usually results in a stable dividend policy which is attractive to investors.
• B) Investors should prefer that a corporation repurchase its common stock when the stock is overpriced.
• C) A reduction in the capital gains rate should work to discourage corporations from repurchasing their shares.
• D) The theory that investors prefer dividends rather than capital gains suggests that firms that increase their dividend payout should expect to realize a higher share price and a lower cost of equity capital.
• E) Answers c and d are both correct.

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Definitions:

Equity Method

An accounting method used to assess the profits earned through the investment in another company by updating the investment's value based on the investee's net income or loss.

Journal Entries

The record of financial transactions in an accounting system, entered as debits and credits to various accounts.

Loss

The financial result of an operation or transaction where expenses exceed revenues.

Significant Influence

The power to participate in the financial and operating policy decisions of another entity, but not control those policies, typically associated with ownership of 20% to 50% of voting shares.