Which one of the following is not a plausible reason for paying dividends?Temporary excess cashInformation signalingClientele effectInvestor preference for dividends

The bird-in-hand theory of dividend policy suggests that investors prefer:a.Higher dividends today rather than uncertain capital gains in the futureb.Lower dividends today in exchange for potential capital gains in the futurec.Dividends paid in the form of additional shares rather than cashd.Dividends paid irregularly based on company performance

Factors affecting Dividend Decision

Which one of the following statements is False:Group of answer choicesAn empirical study from Lintner (1956) finds that managers and investors seem more concerned with dividend changes than with dividend levels.In Australia, the majority of companies that distribute dividends do so on a quarterly basis.The Miller and Modigliani (1961) dividend irrelevance proposition assumes no cost of issuing shares.The way a firm chooses between paying dividends and retaining earnings is referred to as its payout policy.

Dividend policy of a firm is governed by:(i) Long Term Financing Decision:As we know that one of the financing options is ‘Equity’. Equity can either be raisedexternally through issue of new equity shares or can be generated internally throughretained earnings. For Equity, retained earnings are preferable because they do notinvolve any floatation costs (issue expenses).But whether to retain or distribute the profits, forms the basis of this decision.Further, payment of cash dividend reduces the amount of funds required to financeprofitable investment opportunities thereby restricting its financing options.In this backdrop, the decision is based on the following:1. Whether the organization has opportunities in hand to invest the profit,if retained?2. Whether the return on such investment (ROI) will be higher than theexpectations of shareholders i.e. Ke?

According to the free cash flow hypothesis, how does the distribution of dividends benefit shareholders?Multiple choice question.It prevents the dilution of existing shareholders.It increases the amount of free cash flow available to managers for making bad acquisitions.Dividends are always the best use for free cash flows.It reduces the amount of free cash flow available to managers for making bad acquisitions.