Which of the Following Statements Is Correct

question 55

Multiple Choice

Which of the following statements is correct?

• A) If a company uses the residual dividend model to determine its dividend payments, dividends payout will tend to increase whenever its profitable investment opportunities increase.
• B) The stronger management thinks the clientele effect is, the more likely the firm is to adopt a strict version of the residual dividend model.
• C) Large stock repurchases financed by debt tend to increase earnings per share, but they also increase the firm's financial risk.
• D) A dollar paid out to repurchase stock is taxed at the same rate as a dollar paid out in dividends.Thus, both companies and investors are indifferent between distributing cash through dividends and stock repurchase programs.
• E) The tax code encourages companies to pay dividends rather than retain earnings.

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Definitions:

Financial Analysis

The evaluation of a business's financial statements to understand its performance, liquidity, and solvency, among other factors.

Firm's Resources

Assets, capabilities, organizational processes, firm attributes, information, and knowledge that a firm controls and can use to conceive and implement its strategies.

Forecasting Capacity Requirements

The process of predicting the resources (such as machinery, labor, and space) needed to meet product demand at a future time.

Product Life Cycle

The progression of a product through different stages from introduction to growth, maturity, and decline in the marketplace.