Which of the following statements is correct?
A)Firms with a lot of good investment opportunities and a relatively small amount of cash tend to have above-average payout ratios.
B)One advantage of the residual dividend policy is that it leads to a stable dividend payout, which investors like.
C)An increase in the stock price when a company decreases its dividend is consistent with signalling theory as postulated by MM.
D)Stock repurchases make the most sense at times when a company believes its stock is undervalued.

Question

Quizplus · Accepted Answer

Stock repurchases make the most sense when a company believes its stock is undervalued because repurchasing shares reduces the number of outstanding shares and increases earnings per share, which can lead to an increase in the stock price. A, B, and C are not correct statements.

Which of the Following Statements Is Correct