1. Dividend policy A firm's value depends on its expected free cash flow and its cost of capital. Distributions made in the form of dividends or stock repurchases impact the firm's value and the investors in different ways. Some analysts have argued that a firm's value should solely be determined by its basic earning power and the business risk of the firm. Which of these concepts would support these analysts argument? The clientele effect Dividend irrelevance theory The signaling hypothesis The residual dividend model Consider the case of Red Dirt Producers Inc., and answer the question that follows: Red Dirt Producers Inc. is an oil-drilling company. The company paid a dividend of $2.20 last year, and, in the past, its dividend has increased steadily by about 4% a year. Red Dirt just announced that its dividend will increase to $2.90 this year, and its share price rose from $33 per share to 535 per share immediately after the announcement. Which of the following best explains why Red Dirt's stock price increased as it did? The clientele effect . The signaling hypothesis Dividend irrelevance theory which of the following statements is true? Taxes on dividend income are paid in the year that they are received. Taxes on dividend income are paid when the stock is sold As a result, the U.S. tax code encourages many individual investors to prefer to receive Some researchers and analysts have noticed a trend in which firms that increase their dividends see an increase in their stock price. The theory of explains this phenomenon In some cases, analysts notice that groups of similar investors tend to flock to stocks that have dividend policies consistent with their needs. This circumstance is an illustration of: o the information content effect the clientele effect. Grade it Now Save & Continue Continue without saving