Which of the Following Statements Is Correct

question 5

Multiple Choice

Which of the following statements is correct?

• A) the clientele effect can explain why so many firms change their dividend policies so often.
• B) one advantage of adopting the residual dividend policy is that this policy makes it easier for corporations to develop a specific and well-identified dividend clientele.
• C) new-stock dividend reinvestment plans are similar to stock dividends because they both increase the number of shares outstanding but don't change the firm's total amount of book equity.
• D) investors who receive stock dividends must pay taxes on the value of the new shares in the year the stock dividends are received.
• E) if a firm follows the residual dividend policy, then a sudden increase in the number of profitable projects is likely to reduce the firm's dividend payout.

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Definitions:

Certified Checks

Checks guaranteed by a bank, confirming that the drawer has enough funds to cover the amount.

Certification

The formal verification by a recognized authority that an individual, organization, or product has met specific standards or qualifications.

Liability

Legal responsibility for one's actions or failures to act, which may result in being required to compensate for damages or losses caused.

Central Banks

Institutions that manage a country's currency, money supply, and interest rates.