The Fictitious Widget Industry Is Composed of Two Firms

question 63

Multiple Choice

The fictitious widget industry is composed of two firms.One firm is a quality firm and the other is a less-than-quality firm.Given the signaling model of dividends,how might the quality firm convey to the market that it is the quality firm?

• A) tell the market (through analysts)that it is the quality firm
• B) cut its dividend payment to signal that it has a large number of quality projects on the horizon
• C) increase its dividend payment beyond what the less-than-quality firm could afford
• D) there is nothing that the firm could do to address the situation

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