Which of the Following Statements Is False

question 23

Multiple Choice

Which of the following statements is false?

• A) When a firm pays a dividend, shareholders are taxed according to the dividend tax rate. If the firm repurchases shares instead, and shareholders sell shares to create a homemade dividend, the homemade dividend will be taxed according to the capital gains tax rate.
• B) When the tax rate on dividends exceeds the tax rate on capital gains, shareholders will pay lower taxes if a firm uses share repurchases for all payouts rather than dividends.
• C) Firms that use dividends will have to pay a lower after-tax return to offer their investors the same pre-tax return as firms that use share repurchases.
• D) The optimal dividend policy when the dividend tax rate exceeds the capital gain tax rate is to pay no dividends at all.

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Definitions:

Hierarchy

A system or organization in which people or groups are ranked one above the other according to status or authority.

Diplomatically Useful

A term describing actions or policies that can serve a country's foreign policy interests or facilitate international relations.

Royal Blood

Royal blood refers to ancestry that belongs to a royal family, characterized by lineage that historically holds sovereign power or aristocracy.

Austrian Emperor

Refers to the sovereign of the Austrian Empire, a title held by the head of state of Austria from 1804 until 1918.