In the Absence of Taxes, Transaction Costs, or Changes in a Firm's

question 49

Multiple Choice

In the absence of taxes, transaction costs, or changes in a firm's operating or investment policies

• A) the greater the payout ratio, the greater the share price of the firm.
• B) the price of a share of stock is not affected by dividend policy.
• C) the firm should retain earnings so stockholders will receive a capital gain.
• D) the firm should pay a dividend only after current equity financing needs have been met.

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Definitions:

Equity Multiplier

A financial leverage ratio that measures the portion of a company’s assets that is financed by stockholders' equity.

Total Liabilities

The combined amount of a company's short-term and long-term debts, representing claims against the company's assets by outsiders.

Stockholders' Equity

The value remaining in a company after liabilities are subtracted from assets, representing what is owned by the shareholders.

Debt-to-Equity Ratio

This ratio demonstrates the balance between debt and equity shareholders' equity in financing a company's resources.