Which of the Following Statements Is FALSE

question 42

Multiple Choice

Which of the following statements is FALSE?

• A) When a firm pays a dividend, shareholders are taxed according to the dividend tax rate. If the firm repurchases shares instead, and shareholders sell shares to create a homemade dividend, the homemade dividend will be taxed according to the capital gains tax rate.
• B) When the tax rate on dividends exceeds the tax rate on capital gains, shareholders will pay lower taxes if a firm uses share repurchases rather than dividends for all payouts.
• C) Firms that use dividends will have to pay a lower after-tax return to offer their investors the same pretax return as firms that use share repurchases.
• D) The optimal dividend policy when the dividend tax rate exceeds the capital gain tax rate is to pay no dividends at all.

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Definitions:

Dependent Variable

In experimental and statistical research, the variable being tested and measured, which is expected to change under the influence of the independent variable.

Artificial Settings

Environments created or manipulated by researchers to study behavior in controlled conditions, which may not perfectly mimic real-life situations.

Experimental Method

A research methodology involving the manipulation of variables to determine cause-and-effect relationships.

Cause-and-effect Conclusions

Deductive reasoning that connects an action or event (the cause) to outcomes or consequences (the effect), establishing a causal relationship.