The Manager of XYZ Corp

question 15

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) If investment policy is to remain unchanged, the company will need to replace the cash with a stock issue.
• 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:

Cost-output Elasticity

A measure of how responsive the total cost of production is to a change in the quantity produced.

Long-run Cost Function

A representation of the relationship between output and the cost of production when all inputs, including capital, can be varied.

Short-run Cost Function

The costs a company incurs in the production of goods or services within a short period, considering some inputs are fixed.

Long-run Cost Curve

A graphical representation showing the minimum cost at which a firm can produce any given level of output in the long run, when all inputs are variable.