Which of the Following Statements Is Correct

question 42

Multiple Choice

Which of the following statements is correct?

• A) An open-market dividend reinvestment plan will be most attractive to companies that need new equity and would otherwise have to issue additional shares of common stock through investment bankers.
• B) Stock repurchases tend to reduce financial leverage.
• C) If a company declares a 2-for-1 stock split, its stock price should roughly double.
• D) One advantage of adopting the residual dividend policy is that this makes it easier for corporations to meet the requirements of Modigliani and Miller's dividend clientele theory.
• E) If a firm repurchases some of its stock in the open market, then shareholders who sell their stock for more than they paid for it will be subject to capital gains taxes.

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Definitions:

Defensive Attribution

A psychological process by which individuals tend to ascribe fewer vulnerabilities to themselves than to others to avoid feeling vulnerable to misfortunes.

Cognitive Dissonance

A state of psychological discomfort caused by holding two conflicting beliefs, values, or attitudes.

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses, while giving disproportionately less consideration to alternative possibilities.

Fundamental Attribution Error

The tendency to overemphasize personal traits and minimize situational factors as causes of other people's behavior.