The Signaling Effect of Dividends Implies That a Modification of Dividend

question 34

True/False

The signaling effect of dividends implies that a modification of dividend policy makes a strong statement about the direction of earnings which tends to dramatically reinforce or reducing investor confidence.

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Definitions:

Fixed Cost Per Unit

A financial metric that represents the total fixed costs divided by the number of units produced. It decreases as production increases.

Variable Cost

A cost that varies in direct proportion to changes in the level of production or sales volume.

Cost Driver

A factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs.

Indirect Materials

Small items of material such as glue and nails that may be an integral part of a finished product, but whose costs cannot be easily or conveniently traced to it.