The Signaling Model of Dividends Predicts

question 39

Multiple Choice

The signaling model of dividends predicts

• A) managers of firms with high growth opportunities "signal" these good investments with low dividends
• B) managers expecting higher future earnings "signal" with higher dividends
• C) stock prices will fall at dividend increases.
• D) lower quality firms will have larger dividend payouts due to poorer future prospects.

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Definitions:

Fair Value

A valuation process to determine the appropriate value of assets or liabilities, based on current market conditions rather than historical cost.

Goodwill

An intangible asset that arises when a company acquires another business for more than the fair value of its net identifiable assets, representing the value of the company's brand, customer relationships, employee relations, and patents.

Fair Value Enterprise Method

is a valuation approach used to measure the value of a business by assessing the present value of its expected future earnings.

Non-Controlling Interest

The portion of equity interest in a subsidiary not attributable to the parent company, reflecting the minority shareholders' ownership.