Which of the Following Statements Is Correct

question 44

Multiple Choice

Which of the following statements is correct?

• A) one nice feature of dividend reinvestment plans (drips) is that they reduce the taxes investors would have to pay if they received cash dividends.
• B) empirical research indicates that, in general, companies send a negative signal to the marketplace when they announce an increase in the dividend, and as a result share prices fall when dividend increases are announced. the reason is that investors interpret the increase as a signal that the firm has relatively few good investment opportunities.
• C) if a company wants to raise new equity capital rather steadily over time, a new stock dividend reinvestment plan would make sense. however, if the firm does not want or need new equity, then an open market purchase dividend reinvestment plan would probably make more sense.
• D) dividend reinvestment plans have not caught on in most industries, and today about 99% of all companies with drips are utilities.
• E) under the tax laws as they existed in 2008, a dollar received for repurchased stock must be taxed at the same rate as a dollar received as dividends.

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Definitions:

Payback Criterion

A capital budgeting method that measures the time required to recoup the initial investment in a project.

Mutually Exclusive

Referring to events or choices that cannot occur or be taken simultaneously; selecting one option excludes the availability or selection of the other.

Payback Cutoff

The maximum acceptable period within which an investment should recover its initial costs, used as a criterion for investment decisions.

Net Present Values

The calculation of the present value of an investment's expected cash flows minus the initial investment cost.