Which of the Following Statements Is False

question 59

Multiple Choice

Which of the following statements is false?

• A) A firm must therefore balance the tax costs of holding cash with the potential benefits of having to raise external funds in the future.
• B) Paying out excess cash through dividends or share repurchases can boost the stock price by reducing managers' ability and temptation to waste resources.
• C) If there is a reasonable likelihood that future earnings will be insufficient to fund future positive-NPV investment opportunities, a firm may start accumulating cash to make up the difference.
• D) According to the managerial entrenchment theory of payout policy, managers pay out cash only when pressured to do so by the firm's investors.

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Definitions:

Paid Preferred Dividends

Dividends distributed to preferred stockholders, typically on a fixed schedule, before any dividends are given to common stockholders.

Declared Preferred Dividends

Dividends announced by a company's board of directors to be paid on preferred shares.

Preemptive Right

A shareholder's right to maintain their proportional ownership in a company by buying a proportionate share of any new stock issues.

Common Shareholders

Individuals or entities that own common shares in a company, giving them voting rights and a share in the company's profits.