Which of the Following Statements Is False

question 34

Multiple Choice

Which of the following statements is false?

• A) Individuals in the highest tax brackets have a preference for stocks that pay high dividends, whereas tax-free investors and corporations have a preference for stocks with low or no dividends.
• B) To compare investor preferences, we must quantify the combined effects of dividend and capital gains taxes to determine an effective dividend tax rate for an investor.
• C) The dividend-capture theory states that absent transaction costs, investors can trade shares at the time of the dividend so that non-taxed investors receive the dividend.
• D) Differences in tax preferences create clientele effects, in which the dividend policy of a firm is optimized for the tax preference of its investor clientele.

---

Definitions:

Return On Equity

calculates the amount of net income returned as a percentage of shareholders equity, measuring a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

Common Stock

A form of equity security signifying an ownership stake in a company, granting the holder the right to participate in voting on corporate issues and to earn dividends.

Market Price

The present rate at which a service or asset is available for purchase or sale on an open market.

Dividends

Disbursements issued by a corporation to its owners, often in the form of profit sharing.