Which of the following statements is most correct?
A) The tax preference hypothesis suggests that companies can reduce their costs of capital by increasing their dividend payout ratios.
B) One advantage of the residual distribution policy (with all distributions as dividends) is that it leads to a stable dividend payout, which is desired by investors.
C) Firms with a large number of investment opportunities and a relatively small amount of cash tend to have above average dividend payouts.
D) Answers a and b are correct.
E) None of the answers above is correct.

Question

Quizplus · Accepted Answer

The tax preference hypothesis suggests that investors prefer capital gains over dividends due to tax advantages, not increasing dividend payouts. The residual distribution policy does not necessarily lead to stable dividends, as it depends on investment opportunities. Firms with many investment opportunities and limited cash typically have lower dividend payouts.

Which of the Following Statements Is Most Correct