Which of the Following Statements Is CORRECT

question 11

Multiple Choice

Which of the following statements is CORRECT?

• A) Under the tax laws as they existed in 2015,a dollar received by an individual taxpayer as interest income is taxed at the same rate as a dollar received as dividends.
• B) One nice feature of dividend reinvestment plans (DRIPs)is that they reduce the taxes investors would have to pay if they received cash dividends.
• C) Empirical research indicates that,in general,companies send a negative signal to the marketplace when they announce an increase in the dividend.As a result,share prices fall when dividend increases are announced because investors interpret the increase as a signal that the firm expects fewer good investment opportunities in the future.
• D) If a company needs to raise new equity capital,a new-stock dividend reinvestment plan would make sense.However,if the firm does not need new equity,then an open market purchase dividend reinvestment plan would probably make more sense.
• E) Dividend reinvestment plans have not caught on in most industries,and today over 99% of all DRIPs are offered by utilities.

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Definitions:

Return On Investment

A measure used to evaluate the efficiency of an investment, calculated by dividing net profit by the cost of the investment.

Investment Center

A division or unit within a company for which the manager has responsibility for and authority over the unit's revenues, costs, and investments.

Decentralized Units

Subdivisions within a larger organization that operate with a degree of autonomy, often making their own decisions and managing their own operations.

Authority

Authority refers to the power or right given to an individual or organization to make decisions, direct others, and enforce obedience.