Which Statement About Dividend Policies Is Correct

question 39

Multiple Choice

Which statement about dividend policies is correct?

• A)Modigliani and Miller argue that investors prefer dividends to capital gains because dividends are more certain than capital gains. They call this the bird-in-the hand effect.
• B)One advantage of dividend reinvestment plans is that they allow shareholders to avoid paying taxes on the dividends that they choose to reinvest.
• C)The key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy.
• D)The clientele effect suggests that companies should follow a stable dividend policy.

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Definitions:

Employment Standards Acts

Legislation that outlines minimum requirements for working conditions, pay, overtime, and other employment terms to protect workers' rights.

Employee Compensation

The total amount of monetary and non-monetary pay provided to an employee by an employer in return for work performed.

Wage-Rate Compression

A situation where differences in wages or salaries between various roles or levels of experience decrease, leading to diminished pay disparities.

Pay Adjustments

Changes made to an employee's salary to reflect changes in job performance, market rates, or cost of living.