If Management Wants to Maximize Its Stock Price, and If

question 35

True/False

If management wants to maximize its stock price, and if it believes that the dividend irrelevance theory is correct, then it must adhere to the residual distribution policy.

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Definitions:

Tax Benefit

A reduction in tax liability offered by the government for specific expenses, investments, or other financial decisions, leading to a decrease in the total taxes paid.

Debt-Equity Ratio

A metric for evaluating a firm's financial leverage, determined by dividing its total debts by the equity held by shareholders.

Cost of Debt

The actual rate a firm incurs on its overall debt, representing the cost of acquiring funds.

Equity Risk

The risk of loss associated with fluctuations in the price of equities or stocks.