Question 13 Which of the following statements is correct? Answer One advantage o

Question

Question 13

Which of the following statements is correct?
Answer One advantage of dividend reinvestment plans is that they enable investors to avoid paying taxes on the dividends they receive.
If a company has an established clientele of investors who prefer a high dividend payout, and if management wants to keep stockholders happy, it should not
follow the strict residual dividend policy.
If a firm follows a strict residual dividend policy, then, holding all else constant, its dividend payout ratio will tend to rise whenever the firm

Explanation / Answer

One advantage of dividend reinvestment plans is that they enable investors to avoid paying taxes on the dividends they receive. One key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy. The clientele effect suggests that companies should follow a stable dividend policy. You will have 200 shares of stock, and the stock will trade at or near $60 a share. Debt = 60%; Equity = 40%; EPS = $3.18; Stock price = $31.20. One of the benefits to a firm of being at or near its target capital structure is that this eliminates any risk of bankruptcy. An increase in the personal tax rate.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.