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Question
Investors who wish to avoid paying taxes in the present are typically . A. low-dividend clientele
B. high-dividend clientele
C. drawn to firms that have erratic dividend policies
D. none of the above
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- What would be a reason a company would want to understate income? A. to help nudge its stock price higher B. to lower its tax bill C. to show an increase in overall profits D. to increase investor confidenceInvestors who wish to avoid paying taxes in the present are typically . A. low-dividend clientele B. high-dividend clientele C. drawn to firms that have erratic dividend policies D. none of the aboveBased upon the empirical evidence, state whether the following statements are true or false, and briefly explain why. a). Firms are reluctant to change dividends. b). Stock prices generally go up on the ex-dividend date by less than the amount of the dividend in classic tax system. c). Increasing dividend payments to stockholders generally makes bondholders in the firm better off. d). Dividends create a tax disadvantage for investors even when tax rates on dividends and capital gain is the same.
- Which of the following statements is correct? a. Companies may pay too high a price in a large open market repurchase if it takes too long to complete. b. If a company uses the residual dividend model to determine its dividend payments, dividends payout will tend to increase whenever its profitable investment opportunities increase. c. An investor's capital gains from selling stock in a repurchase are always taxed at a higher rate than if the distribution were dividends. d. The tax code encourages companies to pay dividends rather than reinvest earnings. e. The stronger management thinks the clientele effect is, the more likely the firm is to adopt a strict version of the residual dividend model.To what extent do you feel the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate your claims.Ignoring possible tax effects and signaling costs, the total value of a firm’s equity remains the same irrespective of how the firm distributes its residual earnings—dividends or stock repurchases. Each distribution method has certain advantages and disadvantages. Based on your understanding of dividends and stock repurchases, select the best terms to go with the statements. Management is likely to repurchase stock if it believes that the stock is undervalued/overvalued ; this sends positive signals to investors. True or False: Based on the company’s earnings in a particular year, repurchases can be made on an ad hoc basis without sending any negative signals to investors. True False Repurchases are also used to make significant adjustments to a firm’s liquidity/debt to equity ratio. True or False: Repurchases are more dependable than dividends because the investor wealth does not decrease after a repurchase, whereas the stock price decreases…
- Dividend changes may be used by management as a credible communication tool to signal investors about future earnings under which of the following dividend policy theories? Select one: a. the clientele effect b. the expectations theory c. the residual dividend theory d. the information effect Question 19 Incorrect Flag question Question text In perfect capital markets there Select one: a. are no income taxes. b. are no flotation costs. c. All of these. d. is no informational content assigned to a particular dividend policy.In examining investors’ preferences for dividends, it is useful to begin with the concept of dividend irrelevance. Dividend irrelevance suggests that in a world with no taxes or brokerage (or transaction) costs, firms and investors are indifferent to the paying or receiving of dividends. However, as these restrictions are relaxed, various factors suggest that firms should pursue high or low payouts. One such factor is: Dividends received far into the future are significantly more uncertain than dividends received in the near future. Based on the factor described, identify whether investors, in general, will tend to favor high or low payout ratios. Favor a high payout Favor a low payoutWhich of the following theories is supported by the argument that shareholders can transform a company dividend policy into a different policy by means of investors buying and selling on their own account? a. dividend irrelevance theory b. "bird-in-the-hand" theory C. residual distribution model d. tax preference theory
- To what extent does the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate claims.Indicate whether the following statements are true or false. If the statementis false, explain why.e. A company that has established a clientele of investors who prefer largedividends is unlikely to adopt a residual dividend policy.What would be a reason a company would want to overstate income?A. to help nudge its stock price higherB. to lower its tax billC. to show a decrease in overall profitsD. none of the above