2. Other dividend policy issues Aa Aa Despite the theoretical assertions of prop

Question

2. Other dividend policy issues Aa Aa Despite the theoretical assertions of proponents of the dividend irrelevance theory, many investors do care about dividends. The table lists some factors that might affect an investor's preference for dividends. Indicate whether each factor is likely to make an investor prefer to receive more or fewer dividends. Factor Prefer More Dividends Prefer Fewer Dividends Dividends are taxed in the year they are received, while capital gains are taxed when the stock is sold. An investor is on a fixed income and depends upon returns from investment The value of a dividend received today is known, but the value of a capital gain received in the future is uncertain. Spandelay Industries Inc. is a typical company that is very concerned with meeting investors' expectations and keeping investors happy. Its earnings tend to fluctuate from year to year because of the nature of the business the company is in. Which of these statements most likely describes Spandelay Industries Inc.'s dividend policy? O Spandelay Industries Inc. most likely pays very large dividends in years with high earnings and small dividends in the years with low earnings. O Despite the fact that Spandelay Industries Inc.'s earnings tend to fluctuate from year to year, the company most likely pays a predictable, stable dividend each year

Explanation / Answer

Dividends are taxed in the year they are recieved while capital gains are taxed when the stock is sold: Prefer fewer dividends

An investor is on a fixed income and depends upon returns from investment: Prefer More dividends

The value of a dividend received today is unknown, but the value of capital gain received in the future: Prefer more dividends

Spandelay's dividend policy: Despite the fact that Spandelay eanrings tend to flucutate from year to year, the company most likely pays a predictable, stable dividend each year

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