FIN 534 RANK Change The World /fin534rank.com FIN 534 RANK Change The World /fin534rank.com | Page 142

b. One reason that companies tend to avoid stock repurchases is that
dividend payments are taxed at a lower rate than gains on stock
repurchases.
c. One advantage of dividend reinvestment plans is that they allow
shareholders to avoid paying taxes on the dividends that they choose to
reinvest.
d. One key advantage of a residual dividend policy is that it enables a
company to follow a stable dividend policy.
e. The clientele effect suggests that companies should follow a stable
dividend policy.
2. Which of the following statements is CORRECT?
a. One disadvantage of dividend reinvestment plans is that they increase
transactions costs for investors who want to increase their ownership in
the company.
b. One advantage of dividend reinvestment plans is that they enable
investors to postpone paying taxes on the dividends credited to their
account.
c. Stock repurchases can be used by a firm that wants to increase its debt
ratio.
d. Stock repurchases make sense if a company expects to have a lot of
profitable new projects to fund over the next few years, provided
investors are aware of these investment opportunities.