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Which of the following statements about dividend policies is
CORRECT?
a. Modigliani and Miller argue that investors prefer dividends to capital
gains because dividends are more certain than capital gains. They call
this the ―bird-in-the hand‖ effect.
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?