Dividend theory 5. Which of the following statements is CORRECT?

Dividend theory

5. Which of the following statements is CORRECT?

a. One advantage of the residual dividend policy is that it leads to a stable dividend payout, which investors like.

b. Stock repurchases make the most sense at times when a company believes that its stock is undervalued.

c. If the “clientele effect” is correct, then for a company whose earnings fluctuate, a policy of paying a constant percentage of net income will probably maximize the stock price.

d. An increase in the stock price when a company decreases its dividend is consistent with signaling theory.

e. Firms with a large number of investment opportunities and a relatively small amount of cash tend to have above average dividend payout ratios.

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