Lost Pigeon Avionics\'s CFO has stated that the firm will pay dividends only if
ID: 2788979 • Letter: L
Question
Lost Pigeon Avionics's CFO has stated that the firm will pay dividends only if acceptable capital budgeting opportunities do not exist. Which concept did the CFO most likely base her decision on? O Dividend irrelevance theory O The free cash flow hypothesis O The signaling hypothesis The clientele effect Consider the case of Red Dirt Producers Inc., and answer the question that follows: Red Dirt Producers Inc. is an oil drilling company and has some free cash flow that is not expected to be used to finance future growth or potential investment projects. The company plans to distribute its free cash flow to its shareholders but is still deciding whether the distribution should take the form of a stock repurchase or the payment of a cash dividend Which of the following is a characteristic of a firm's optimal dividend policy? It maximizes the firm's return on equity It maximizes the firm's total assets It maximizes the firm's earnings per share O It maximizes the firm's stock price Modigliani and Miller argued that each shareholder can construct his or her own dividend policy. This statement is: rue O False Modigliani and Miller also pointed out that many institutional investors do not pay taxes and can buy and sell stocks with very low transaction costs. For these investors, dividend policy is investor relevant than it is for an individual Some researchers and analysts have noticed a trend in which firms that increase their dividends see an increase in their stock price. The theory of explains this phenomenon In some cases, analysts notice that groups of similar investors tend to flock to stocks that have dividend policies consistent with their needs. This circumstance is an illustration of: The clientele effect The information content effectExplanation / Answer
Paying dividend will signal lack of investment opportunities.
Hence signalling hypothesis is correct
Repurchase will lead to earning per share increase
Hence 3rd option is correct
True- Since if company cannot pay dividend one can sell a part of stock portfolio
Blanks-less relevant as they can easily sell or buy stock as per their comfortable level of dividend requirement
Blank-growth theory explains the phenomenon
Clientele effect for example pension funds will require more dividend paying stocks
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