Which of the following statements best represents the 'bird in the hand' argument?
A)Debt increases share price.
B)A company's share price will decrease if dividends are reduced now,in order to increase the growth in future profits and dividends.
C)Investors are indifferent between a dollar of dividends compared to the capital gains expected from a dollar of retained profits.
D)Expected capital gains are seen as uncertain because their eventual realisation depends on the returns from risky initial investments.

Question

Quizplus · Accepted Answer

The 'bird in the hand' argument implies that investors prefer a certain, immediate benefit over a potentially larger, but uncertain benefit in the future. Therefore, reducing dividends now to invest in future growth may not be viewed favorably by investors, as they would rather receive a current dividend payment than wait for potential future gains. Option B represents this argument by stating that reducing dividends now would lead to a decrease in share price, which supports the idea that investors place a high value on current dividend payments.

Which of the Following Statements Best Represents the 'Bird in the Hand