b. The bird-im-and thoory c. The tax prefierence its stock price by that it enab
ID: 2618258 • Letter: B
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b. The bird-im-and thoory c. The tax prefierence its stock price by that it enables acepny to follew stable a nesidual dlividond policy is t ollow a stable dividend policy e, The chentcle effocr ugests that companies 4 Which of the following statements is most correet? a. The bird-in-the-hand theory implies that a company can reduce its stock price by reducing its dividend payout b. The bird-in-the-hand theory implies that a company can increase its stock price by reducing its dividend payour e. One problem with tollowing a residual dividend policy is that it can lead to erratic dividend payouts that may prevent the firm from establishing a reliable elientele of investors who prefer a particular dividend policy d. Statements a and e are correct e. All of the statements above are correct 5. Which of the following statements is most correct? a. As a rule, the optimal capital structure maximizes expected EPS is found by determining the debt-equity mix that b. The optimal capital structure simultaneously maximizes and minimizes the WACc. The optimal capital structure minimizes the cost of equity, which is a necessary condition for aximizing the stock price. The optimal capital structure simultaneously minimizes the cost of debt, the cost of equity. and WACC one ofthe statements above is correctExplanation / Answer
5) Statement c is correct as maximization of shareholders wealth is the prime objective of every organisation. The same could be achieved through various means one of which is balancing the debt equity ratio of company for reducing cost of capital of capital.
4) Option d is correct as both a and c statements are correct under birds in hand theory which states that the stock with higher dividends are sought by investors and consequently demand a higher market price. Thus, with low dividend payout the market price may reduce as the investors today believe in holding what one already has rather loosing in order to grab more.
3) Option e is correct as investors today prefer stable dividend policies as when the company is undergoing losses and it still maintains its dividend then it shows that the company has favourable bright future plans .
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