Matching
Match the following:
Premises:
Dividend irrelevance theory
Responses:
Any decrease in a stock's value from reducing near-term dividends is offset by increases in future dividends and selling price that come from additional earnings retained.
A smaller dividend than expected is viewed as a negative even if it is an increase over previous dividends.
The future is uncertain, so cash in management's hands may not result in a more valuable company. Therefore a dividend distribution is preferable to retaining earnings.
The firm first funds all viable capital budgeting projects, and then distributes any remaining earnings as dividends.
Correct Answer:
Premises:
Responses:
Any decrease in a stock's value from reducing near-term dividends is offset by increases in future dividends and selling price that come from additional earnings retained.
A smaller dividend than expected is viewed as a negative even if it is an increase over previous dividends.
The future is uncertain, so cash in management's hands may not result in a more valuable company. Therefore a dividend distribution is preferable to retaining earnings.
The firm first funds all viable capital budgeting projects, and then distributes any remaining earnings as dividends.
Premises:
Any decrease in a stock's value from reducing near-term dividends is offset by increases in future dividends and selling price that come from additional earnings retained.
A smaller dividend than expected is viewed as a negative even if it is an increase over previous dividends.
The future is uncertain, so cash in management's hands may not result in a more valuable company. Therefore a dividend distribution is preferable to retaining earnings.
The firm first funds all viable capital budgeting projects, and then distributes any remaining earnings as dividends.
Responses:
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