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.

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Definitions:

Net Present Value

A method used in capital budgeting to analyze the profitability of a projected investment or project by calculating the difference between the present value of cash inflows and outflows.

Present Value Factors

Factors used in discounting future cash flows to determine their present value, helping in the assessment of the value of investments today.

Compound Interest

is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Internal Revenue Code

The Internal Revenue Code refers to the comprehensive set of tax laws and regulations enforced by the United States federal government, covering income, corporate, and estate taxes.