Which of the following statements is CORRECT?

A. Suppose a firm that has been earning $2 and paying a dividend of $1.00, or a 50% dividend payout, announces that it is increasing the dividend to $1.50. The stock price then jumps from $20 to $30. Some people would argue that this is proof that investors prefer dividends to retained earnings. Miller and Modigliani would agree with this argument.
B. Other things held constant, the higher a firm's target dividend payout ratio, the higher its expected growth rate should be.
C. Miller and Modigliani's dividend irrelevance theory says that the percentage of its earnings that a firm pays out in dividends has no effect on its cost of capital, but it does affect its stock price.
D. The federal government sometimes taxes dividends and capital gains at different rates. Other things held constant, an increase in the tax rate on dividends relative to that on capital gains would logically lead to a decrease in dividend payout ratios.
E. If investors prefer firms that retain most of their earnings, then a firm that wants to maximize its stock price should set a high dividend payout ratio.


Answer: D

Business

You might also like to view...

While preparing a long report, Clusty, Dogpile, SurfWax, and Copernic Agent are good ________ to consult in your research

A) Subject directories B) Search engines C) Metasearch engines

Business

Explain the concepts of emotional support and instrumental support. When are they important?

What will be an ideal response?

Business

What is the process of tracing upward in the bill of material from the component to the parent item in order to determine the cause for the component requirement?

A) net requirements planning B) time fencing C) pegging D) backtracking E) leveling

Business

A measurable quantity that may vary, or is subject to change, and can be controlled is known as a(n)

A) decision variable. B) algorithm. C) parameter. D) solution. E) None of the above

Business