Which of the following statements is FALSE?
A)In perfect capital markets,holding fixed the investment policy of a firm,the firm's choice of dividend policy is irrelevant and does not affect the initial share price.
B)In a perfect capital market,when a dividend is paid,the share price drops by the amount of the dividend when the stock begins to trade ex-dividend.
C)In perfect capital markets,an open market share repurchase has no effect on the stock price,and the stock price is the same as the ex-dividend price if a dividend were paid instead.
D)In perfect capital markets,investors are indifferent between the firm distributing funds via dividends or share repurchases.By reinvesting dividends or selling shares,they can replicate either payout method on their own.

Question

Quizplus · Accepted Answer

In perfect capital markets, an open market share repurchase does affect the stock price because it reduces the number of shares outstanding, potentially increasing the stock price, unlike the ex-dividend price drop when a dividend is paid.

Which of the Following Statements Is FALSE