Which of the Following Statements Is Correct

question 48

Multiple Choice

Which of the following statements is correct?

• A) If a company uses the residual dividend model to determine its dividend payments,dividends payout will tend to increase whenever its profitable investment opportunities increase.
• B) The stronger management thinks the clientele effect is,the more likely the firm is to adopt a strict version of the residual dividend model.
• C) Large stock repurchases financed by debt tend to increase earnings per share,but they also increase the firm's financial risk.
• D) A dollar paid out to repurchase stock is taxed at the same rate as a dollar paid out in dividends.Thus,both companies and investors are indifferent between distributing cash through dividends and stock repurchase programs.
• E) The tax code encourages companies to pay dividends rather than retain earnings.

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