If a Firm Unexpectedly Raises Its Dividend Permanently and by a Substantial

question 74

Multiple Choice

If a firm unexpectedly raises its dividend permanently and by a substantial amount,the firm's stock price:

• A) should rise, given dividend discount models.
• B) should decline, given discounted cash flow analysis.
• C) will remain constant, due to market efficiency.
• D) remain constant, due to random-walk behavior.

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Definitions:

Agency

An organization, company, or bureau that provides a specific service.

Polygraph Test

A lie detector test that measures and records several physiological indices such as blood pressure, pulse, respiration, and skin conductivity while the subject answers a series of questions.

Without Recourse

A clause indicating that the holder of a negotiable instrument cannot seek payment from the sender in the event of non-payment by the intended party.

Contractual Liability

Legal obligations arising from contracts entered into by an entity or individual.