Which of the Following Statements Is FALSE

question 10

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.

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Definitions:

Dependent Variables

Variables in an experiment that are expected to change as a result of an experimental manipulation of the independent variable(s).

Independent Variables

Factors that are manipulated or selected by the researcher to determine their effect on an outcome.

Multivariate Analysis of Variance

A statistical method used to compare group means on several dependent variables simultaneously.

Independent Variables

Variables in an experiment or model that are manipulated or categorized to observe their effect on dependent variables.