The viewpoint that high dividends increase stock values is based on which of the following principles?
A) time value of money
B) risk-return trade-off
C) taxes bias business decisions
D) the agency problem

Question

Quizplus · Accepted Answer

The principle of time value of money suggests that money today is worth more than the same amount of money in the future. If a company pays high dividends, investors receive immediate cash flows, which they can use to invest or reinvest elsewhere. This immediate cash flow has a higher value than receiving the same amount in the future, as it gives investors the opportunity to compound their returns over time. Therefore, high dividends can increase the overall value of a stock.

The Viewpoint That High Dividends Increase Stock Values Is Based