Which of the Following Statements About Dividend Policies Is Correct

question 54

Multiple Choice

Which of the following statements about dividend policies is correct?

• A) One reason that companies tend to avoid stock repurchases is that dividend payments are taxed at a lower rate than gains on stock repurchases.
• B) One advantage of dividend reinvestment plans is that they allow shareholders to avoid paying taxes on the dividends that they choose to reinvest.
• C) One key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy.
• D) The clientele effect suggests that companies should follow a stable dividend policy.
• E) Modigliani and Miller argue that investors prefer dividends to capital gains because dividends are more certain than capital gains.They call this the "bird-in-the hand" effect.

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Definitions:

Incongruent

Describes something that is not in harmony or consistent with something else, often leading to cognitive dissonance.

Stanley Milgram

A psychologist known for his research on obedience, demonstrating how people are willing to follow orders from authority figures, even to the extent of harming others.

Obedience

The act of following orders or instructions from an authority figure.

Situational Factors

External influences that affect an individual's behavior, decisions, and attitudes in a given context.