Company a and Company B Both Paid a $2 Per

question 15

Multiple Choice

Company A and Company B both paid a $2 per share dividend last year.This year,Company A announces an increase to $3 per share while Company B announces an increase to $2.50 per share.After the announcement,the price of Company B stock increases and the price of Company A's stock decreases.Which of the following best explains this situation?

• A) The stock market is irrational.
• B) Company A had higher agency costs than Company B prior to the announcement.
• C) Both companies need to raise capital for positive NPV projects and flotation costs are high.
• D) Capital markets are perfect.

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Definitions:

Corner Store

A small retail outlet, often found in urban areas or neighborhoods, that stocks a range of everyday items such as groceries, snacks, and household goods.

Frozen

The term "frozen" can refer to a state of being solidified by cold, or metaphorically, to a situation or process that has been stopped or immobilized.

American Medical Association

The American Medical Association (AMA) is a professional group that represents the interests of physicians and health professionals in the United States and aims to improve public health policies.

Legitimizes

The process of making something acceptable, valid, or justified according to established rules, standards, or beliefs.