Which of the following statements is FALSE in relation to using the distribution rate to estimate a firm-specific gamma for dividend imputation?
A)The distribution of taxable profits is dependent upon management's surplus cash needs.
B)A firm can pay fully franked dividends, even in periods in which it does not pay corporate income tax.
C)The known distribution rate of a particular firm should not be used; instead, an average of all firms in the economy should be substituted.
D)If undistributed, excess franking credits are not lost, but rather can accumulate.

Question

Quizplus · Accepted Answer

The known distribution rate of a particular firm is used to estimate its firm-specific gamma for dividend imputation, rather than an average of all firms in the economy. The distribution rate reflects the proportion of taxable profits that are distributed as dividends, which can vary depending on a firm's cash needs and growth opportunities. Option A and D are true statements, while Option B is also true as companies can use franking credits from previous tax years to fully frank their dividends even if they have not paid corporate income tax in the current year.

Which of the Following Statements Is FALSE in Relation to Using