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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