Which of the Following Statements Is Correct

question 14

Multiple Choice

Which of the following statements is correct?

• A) One advantage of the residual dividend policy is that it leads to a stable dividend payout, which investors like.
• B) An increase in the stock price when a company decreases its dividend is consistent with signaling theory as postulated by MM.
• C) If the "clientele effect" is correct, then for a company whose earnings fluctuate, a policy of paying a constant percentage of net income will probably maximize the stock price.
• D) Stock repurchases make the most sense at times when a company believes its stock is undervalued.
• E) Firms with a lot of good investment opportunities and a relatively small amount of cash tend to have above average payout ratios.

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Definitions:

Marketability

The ease with which a product or service can be sold in the market.

Solvency

A company's ability to meet its long-term financial obligations, indicating financial health and stability.

Trading On The Equity

The practice of using borrowed money to increase the potential return of an investment.

Common Stockholders' Equity

The portion of a company's equity owned by common stockholders, calculated as the company's total assets minus its liabilities and preferred stock equity.