Proponents of the Dividend Irrelevance Theory Argue That, All Else

question 117

Multiple Choice

Proponents of the dividend irrelevance theory argue that, all else being equal, an investor's required return and the value of the firm are unaffected by dividend policy, for all of the following reasons, EXCEPT

• A) the firm's value is determined solely by the earning power and risk of its assets.
• B) investor's are generally risk averse and attach less risk to current as opposed to future dividends or capital gains.
• C) if dividends do affect value, they do so solely because of their information content, which signals managements' earnings expectations.
• D) a clientele effect exists which causes a firm's shareholders to receive the dividends that they expect.

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Definitions:

Nephrology

A branch of medicine concerned with the study, diagnosis, and treatment of kidney diseases.

Cardiomyopathy

A disease of the heart muscle that makes it harder for the heart to pump blood to the rest of the body, potentially leading to heart failure.

Musculoskeletal

Pertaining to the system that encompasses muscles, bones, joints, tendons, and ligaments, facilitating movement and structural support.

Neurological

Related to the nervous system, encompassing the brain, spinal cord, and nerves, and the disorders that affect them.