Which one of these statements is true? A). Dividend policy is relevant. B). Shareholders are...

Question:

Which one of these statements is true?

A). Dividend policy is relevant.

B). Shareholders are unable to personally adjust the dividend policy set by the firm.

C). According to Miller and Modigliani, a firm should alter its investment policy whenever a change is made in its dividend policy.

D). Dividends are irrelevant .

E). Firms should never give up a positive NPV project to increase a dividend.

Dividend Policy Relevancy:

There are many possible reasons for why dividend policy matters. Some examples include: (1) lower over-investment due to agency costs (2) lower risk (3) signaling effect of dividends (4) tax effect of dividend (5) diversification of shareholder portfolios (6) higher disclosure requirements.

Answer and Explanation:

A) True.

Dividend policy affects cash flows. Any policy that affects cash flows matters.

B) False

Shareholders can use "homemade"...

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Homemade Dividends: Definition & Examples

from Finance 101: Principles of Finance

Chapter 16 / Lesson 2
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