Which of the Following Statements Is CORRECT

question 43

Multiple Choice

Which of the following statements is CORRECT?

• A) Under the tax laws as they existed in 2017,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:

Marginal Cost

The cost of producing one additional unit of a product, which varies depending on the level of production.

Marginal Revenue

The gain in revenue from disposing of one additional unit of a good or service.

Price Elasticity

An indicator of the responsiveness of the quantity of a product demanded to its price change, represented in terms of percentage variation.

Demand Curve

An illustration depicting the correlation between a product's price and the level of demand from buyers, often characterized by a descending trajectory.