Which of the Following Statements Is Not Considered a Potential

question 31

Multiple Choice

Which of the following statements is not considered a potential answer to the question of why corporations pay dividends?

• A) Paying dividends avoids the double taxation of corporate income.
• B) Demanding that managers pay out dividends restricts their investment activities and forces them to adopt more efficient investment policies.
• C) Paying dividends is a source of investor goodwill.
• D) Dividends are a signal to the capital markets about the health of a corporation's activities.

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Definitions:

Fair Value

What one would receive for selling an asset or pay to transfer a liability in a structured deal among those active in the market at the point of measurement.

Full Goodwill Method

An accounting method that recognizes goodwill based on the full fair value of a subsidiary, not just the portion acquired by the parent company.

Non-controlling Interest

A minority stake in a company that is not enough to control company decisions, represented as a separate component of equity in the consolidated financial statements.

Business Combination

A transaction or other event in which an acquirer obtains control of one or more businesses.