It Has Been Argued That Investors Prefer High-Payout Companies Because

question 13

True/False

It has been argued that investors prefer high-payout companies because dividends are more certain (less risky)than the capital gains that are supposed to come from retained earnings.However,Miller and Modigliani say that this argument is incorrect,and they call it the "bird-in-the-hand fallacy." MM base their argument on the belief that most dividends are reinvested in stocks,hence are exposed to the same risks as reinvested earnings.

---

Definitions:

MACRS

The Modified Accelerated Cost Recovery System, a method of depreciation in the U.S. for tax purposes, allowing for accelerated asset expense deductions over time.

5-Year Property

Property that is classified under MACRS (Modified Accelerated Cost Recovery System) as having a recovery period of 5 years for depreciation purposes.

Automobiles

Motor vehicles with four wheels, designed primarily for passenger transportation on roadways.

Home Office Expenses

Costs associated with using a portion of a home for business purposes, potentially deductible for tax purposes.