The Manager of XYZ Corp

question 11

Multiple Choice

The manager of XYZ Corp.feels that a dividend increase will increase 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:

MC Curve

Marginal Cost Curve, which shows the change in total cost that arises when the quantity produced changes by one unit.

AVC Curve

A graph representing the Average Variable Cost of producing different quantities of output, typically showing how AVC decreases and then increases.

Market Demand

The overall sum of a particular good or service that every customer in a market is eager and able to acquire at a range of prices.

Equilibrium Price

The market price at which the quantity demanded equals the quantity supplied, leading to market equilibrium.