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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Definitions:

Health Insurance

Health insurance is a form of insurance coverage that typically pays for medical, surgical, prescription drug, and sometimes dental expenses incurred by the insured.

Retirement Plan

A financial arrangement designed to replace employment income upon retirement, often including contributions from both the employer and employee.

Federal Income Taxes

Taxes levied by the federal government on the annual income of individuals, corporations, trusts, and other legal entities.

Maturity Date

The specified date on a financial instrument at which the principal (or face value) is paid back to the investors and the instrument is no longer valid.