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:

Tacit Knowledge

Knowledge that is difficult to transfer to another person by means of writing it down or verbalizing it, often gained through personal experience.

Civilian Conservation Corps

A public work relief program in the United States during the Great Depression that provided unskilled manual labor jobs related to the conservation and development of natural resources.

NRA Codes

Regulations established by the National Recovery Administration during the New Deal in the United States to set fair competition standards, establish minimum wages, and limit work hours to stimulate economic recovery.