Which of the following statements is correct? a. One advantage of the residual dividend policy is...
Which of the following statements is correct?
a. One advantage of the residual dividend policy is that it leads to a stable dividend payout, which investors like.
b. An increase in the stock price when a company decreases its dividend is consistent with signaling theory as postulated by MM.
c. If the "clientele effect" is correct, then for a company whose earnings fluctuate, a policy of paying a constant percentage of net income will probably maximize the stock price.
d. Stock repurchases make the most sense at times when a company believes its stock is undervalued. e. Firms with a lot of good investment opportunities and a relatively small amount of cash tend to have above average payout ratios.
Homework Answers
the correct choice is d
since stock repurchases make most sense when compnay believe its stock is undervalued
because since the stock is undervalued buying it at this point will yield higher capital gains
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