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:

Marginal Utility

The heightened utility one obtains from the consumption of an extra unit of a particular good or service.

Income

Income earned, particularly when it's consistent, from work or investment returns.

Efficient Allocation

An economic condition where resources are distributed in a way that maximizes the welfare of society, ensuring that every good or service is produced up to the point where the last unit provides a benefit equal to the cost of producing it.

Risk

Uncertainty about future outcomes.