Describe the Three Divergent Views of Dividend Policy's Effect on Share

question 24

Essay

Describe the three divergent views of dividend policy's effect on share price.

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Definitions:

Average Tax Rate

The fraction of total income that is paid as taxes, calculated by dividing the total amount of taxes paid by the taxpayer's total income.

Marginal Tax Rate

The rate at which the last dollar of a person's income is taxed, indicating how much tax will be paid on an additional dollar of income.

Income Before Taxes

The gross income a person or corporation earns before taxes are deducted.

Marginal Tax Rate

The rate at which an additional dollar of income is taxed, serving as a useful measure of the impact of taxes on incentives to earn more.