.2 points Question 3 Which of the following statements is correct? Answer Under
ID: 2681495 • Letter: #
Question
.2 points
Question 3
Which of the following statements is correct?
Answer Under the tax laws as they existed in 2008, a dollar received for repurchased stock must be taxed at the same rate as a dollar received as dividends.
One nice feature of dividend reinvestment plans (DRIPs) is that they reduce the taxes investors would have to pay if they received cash dividends.
Empirical research indicates that, in general, companies send a negative signal to the marketplace when they announce an increase in the dividend, and as a result share prices fall when dividend increases are announced. The reason is that investors interpret the increase as a signal that the firm has relatively few good investment opportunities.
If a company wants to raise new equity capital rather steadily over time, a new stock dividend reinvestment plan would make sense. However, if the firm does not want or need new equity, then an open market purchase dividend reinvestment plan would probably make more sense.
Dividend reinvestment plans have not caught on in most industries, and today about 99% of all companies with DRIPs are utilities.
.2 points
Question 4
Trenton Publishing follows a strict residual dividend policy. All else equal, which of the following factors would be most likely to lead to an increase
in the firm
Explanation / Answer
3) If a company wants to raise new equity capital rather steadily over time, a new stock dividend reinvestment plan would make sense. However, if the firm does not want or need new equity, then an open market purchase dividend reinvestment plan would probably make more sense. 4)The firm’s net income increases 5)Its stock price has increased over the last year by a greater percentage than the increase in the broad stock market averages. 6)no dividends were paid during the year 7)The tax code encourages companies to pay dividends rather than retain earnings
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.