The Manager of XYZ Corp

question 96

Multiple Choice

The manager of XYZ Corp. feels that a dividend increase will increase the stock price because many investors value stock with a dividend-discount model. Why might MM disagree with this assertion?

• A) The increased dividend makes the firm much riskier.
• B) Future dividend growth may slow due to lower retained earnings.
• C) Investors prefer capital gains over dividends.
• D)Dividend increases will increase the book value but not the market value of the firm.

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Definitions:

Equity Method Investments

Accounting for investments where the investor has significant influence but not full control over the investee, recognizing their share of investee profits.

Cash Dividends

Distributions from a company to its shareholders, representing a share of the firm's profits.

Dividend Revenue

Income received from owning shares in a company when the company distributes some of its earnings to shareholders.

Debt Investments-HTM

Debt Investments-HTM (Held-to-Maturity) are debt securities a company intends and is able to hold until they mature, recorded at amortized cost.