Question1: Low dividends may increase stock value according to the _____.
[A] Bird-in-the-hand theory
[B] Information effect
[C] Impact of agency costs
[D] Tax bias in favor of capital gain
Question2: The “bird-in-the-hand” dividend theory suggests that _____.
[A] High dividends increase stock value because capital markets are inefficient and dividends are the only sure way to get money from an equity investment
[B] High dividends decrease stock value because dividend pay take money out of the corporate “nest” and reduce the ability of the corporation to function efficiently
[C] High dividends increase stock value because shareholders believe they can earn a higher return than the company
[D] High dividends increase stock value because shareholders are more certain of the dividend yield than of potential future capital earns
Question3: The residual dividend theory suggests that dividends will only be paid ____.
[A] If interest rates available to shareholders are higher than the required return on the company’s stock
[B] If current retained earnings exceed the equity portion of the company’s capital budget
[C] If the tax rate on capital gains is higher than the tax value on dividends
[D] If the corporation has more positive NPV projects than it can fund