The shares of Milton, Inc. fell sharply today after the company announced that it is increasing its regular cash dividend distributions. Which of the following explanations may explain investors' negative reaction?

Question

Quizplus · Accepted Answer

By increasing regular cash dividends, the company is sending a signal that it doesn't have enough positive NPV projects to use all the money. This may have caused investors to re-evaluate their expectations about the company's growth potential, leading to a sharp decline in the share price. Option A is unlikely to be a reason for such a negative reaction. Option C may be valid, but it is not necessarily the most likely one, as the reaction will depend on the investors' expectations and preferences. Option D is incorrect, as option B provides a plausible explanation for the share price decline.

The Shares of Milton, Inc