Which Statement Is Correct

question 33

Multiple Choice

Which statement is correct?

• A) the dividend discount model is no longer applicable when there are stock repurchases.
• B) when valuing free cash flow per share it is important to include both dividends per share and the cash received from repurchases.
• C) shareholders like dividends because it is the only way that they can get their hands on cash.
• D) if capital investment and capital structure are held constant, smaller dividends mean larger repurchases.

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Definitions:

December

The twelfth and final month of the year in the Gregorian calendar, often associated with end-of-year activities and holidays.

Retained Earnings

The portion of net income left over for the business after it has paid out dividends to its shareholders, often reinvested in the business or used to pay off debt.

Absorption Costing

An accounting method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in the cost of a product.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, highlighting the impact of fixed costs.