Which of the Following Statements Is Correct

question 55

Multiple Choice

Which of the following statements is correct?

• A)One feature of dividend reinvestment plans (DRIPs) is that they reduce the taxes investors would have to pay if they received cash dividends.
• B)Empirical research indicates that, in general, companies send a negative signal to the marketplace when they announce an increase in the dividend, and as a result, share prices fall when dividend increases are announced. The reason for this is that investors interpret the increase as a signal that the firm has relatively few good investment opportunities.
• C)If a company wants to raise new equity capital steadily over time, a new stock dividend reinvestment plan would make sense. However, if the firm does not want or need new equity, then an open market purchase dividend reinvestment plan would probably make more sense.
• D)Dividend reinvestment plans have not caught on in most industries, and today about 99% of all companies with DRIPs are utilities.

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Definitions:

First Quartile

The median of the lower half of a dataset, also called the lower quartile.

Positively Skewed Distribution

A probability distribution that is asymmetric with a longer tail on the right side, indicating that the mean and median are greater than the mode.

Smallest Observation

The smallest observation, also known as the minimum value, is the lowest value in a set of data points.

3rd Quartile

A value below which 75% of the data points in a dataset fall.