Matching
Match the following:
Premises:
Bird in the hand theory
Responses:
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.
A smaller dividend than expected is viewed as a negative even if it is an increase over previous dividends.
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.
The firm first funds all viable capital budgeting projects, and then distributes any remaining earnings as dividends.
Correct Answer:
Premises:
Responses:
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.
A smaller dividend than expected is viewed as a negative even if it is an increase over previous dividends.
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.
The firm first funds all viable capital budgeting projects, and then distributes any remaining earnings as dividends.
Premises:
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.
A smaller dividend than expected is viewed as a negative even if it is an increase over previous dividends.
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.
The firm first funds all viable capital budgeting projects, and then distributes any remaining earnings as dividends.
Responses:
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