Which of the Following Statements Is Correct

question 52

Multiple Choice

Which of the following statements is correct?

• A)One advantage of dividend reinvestment plans is that they enable investors to avoid paying taxes on the dividends they receive.
• B)If a company has an established clientele of investors who prefer a high dividend payout, and if management wants to keep stockholders happy, it should not follow the strict residual dividend policy.
• C)If a firm follows a strict residual dividend policy, then, holding all else constant, its dividend payout ratio will tend to rise whenever the firm's investment opportunities improve.
• D)Despite its drawbacks, following the residual dividend policy will tend to stabilize actual cash dividends, and this will make it easier for firms to attract a clientele that prefers high dividends, such as retirees.

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Definitions:

Materials Purchases

The procurement of raw materials required for production or manufacturing processes.

Sales Budget

A detailed plan that estimates the expected sales for a particular period, including volume and revenue forecasts.

Budgeted Purchases

Budgeted purchases represent the projected buying activities of a business, detailing the amount of inventory needed to meet sales forecasts and maintain stock levels.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated as the beginning inventory plus purchases minus the cost of goods sold.