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.

---

Definitions:

Rent Controls

Government-imposed limitations on the amount landlords can charge for leasing a property.

Equilibrium Price

The price at which the quantity of a good demanded equals the quantity supplied.

Equilibrium Price

The market price at which the quantity of goods supplied is equal to the quantity of goods demanded.

Price Ceiling

A legal maximum price that can be charged for a good or service, beyond which it cannot be sold.