Which of the following statements is CORRECT?
A) Under the tax laws as they existed in 2017,a dollar received by an individual taxpayer as interest income is taxed at the same rate as a dollar received as dividends.
B) One nice feature of dividend reinvestment plans (DRIPs)is that they reduce the taxes investors would have to pay if they received cash dividends.
C) Empirical research indicates that,in general,companies send a negative signal to the marketplace when they announce an increase in the dividend.As a result,share prices fall when dividend increases are announced because investors interpret the increase as a signal that the firm expects fewer good investment opportunities in the future.
D) If a company needs to raise new equity capital,a new-stock dividend reinvestment plan would make sense.However,if the firm does not need new equity,then an open market purchase dividend reinvestment plan would probably make more sense.
E) Dividend reinvestment plans have not caught on in most industries,and today over 99% of all DRIPs are offered by utilities.

Question

Quizplus · Accepted Answer

Dividend reinvestment plans (DRIPs) can be structured in different ways depending on a company's needs. If a company needs to raise new equity capital, issuing new stock through a DRIP can be an efficient way to do so. Conversely, if a company does not need new equity, buying existing shares on the open market to fulfill DRIP obligations can be more appropriate, avoiding the dilution of existing shares. This flexibility makes DRIPs a versatile tool for companies in managing their capital structure and shareholder base.

Which of the Following Statements Is CORRECT