Which of the following statements is correct?
A)The optimal dividend policy is the one that satisfies management, not shareholders.
B)The use of debt financing has no effect on earnings per share (EPS) or stock price.
C)The riskiness of projected EPS can impact the firm's value.
D)Stock price is dependent on the projected EPS and the use of debt, but not on the timing of the earnings stream.
E)Dividend policy is one aspect of the firm's financial policy that is determined solely by the shareholders.

Question

Quizplus · Accepted Answer

The riskiness of projected EPS can impact the firm's value as investors may require a higher rate of return to compensate for the level of risk. A, B, D, and E statements are not accurate. The optimal dividend policy should maximize shareholder wealth, debt financing can impact earnings per share and stock price, stock prices are dependent on the timing of earnings stream, and dividend policy is not determined solely by shareholders, but also by the financial health of the company.

Which of the Following Statements Is Correct