Which of the following statements is correct? a. The tax code encourages companies to pay dividends...
Which of the following statements is correct?
a. The tax code encourages companies to pay dividends rather than reinvest earnings.
b. Companies may pay too high a price in a large open market repurchase if it takes too long to complete.
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 stronger management thinks the clientele effect is, the more likely the firm is to adopt a strict version of the residual dividend model.
e. 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.
Homework Answers
The Correct option is b. Companies may pay too high a price in a large open market repurchase if it takes too long to complete
The Options a, c, d and e are incorrect.
The tax code does not encourages companies to pay dividends rather than reinvest earnings
One advantage of stock repurchases is that they are generally taxed more favorably than dividend payments.
The stronger management thinks the clientele effect is,the firm will not adopt a strict version of the residual dividend model.
. If a company uses the residual dividend model to determine its dividend payments, dividends payout will not increase whenever its profitable investment opportunities increase.
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