An Increase in Share Price Following an Increase in Dividends

question 23

Multiple Choice

An increase in share price following an increase in dividends is logical if the:

• A) firm borrows to obtain cash for the dividend.
• B) increased dividend signals higher future earnings.
• C) dividend is believed to be temporary.
• D) clientele effect is not important.

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Definitions:

Incorporated

The process of legally declaring a business as a corporation, which is recognized as a separate entity from its owners.

Legal Entity

An organization that has legal rights and obligations, including the ability to enter into contracts, sue, and be sued.

Owners

Individuals or entities that hold legal title and the rights of possession and use of property or goods.

Not-For-Profit Corporations

Organizations that use their surplus revenues to achieve their goals rather than distributing them as profit or dividends.