4. 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. Consider the case of Green Mountain Producers Inc,, and answer the question that follows: Green Mountain Producers Ine. is an oll drilling company. The compony paid a dividend of $2.80 last year, and, in the past, its dividend has increased steadily by about 4% a year. Green Mountain just announced that its dividend will increase to $3.75 this year, and its shore price rose from $35 per share to $38 per share immediately after the announcement. Which of the following best explains why Green Mountain's stock price increased as it did? The cientelo effect MM dividend irrelevance The signaing hypothesis Which of the following statements is true? Taxes on divdend income are paid when the stock is sold. Taxes on dividend income are paid in the year that they are received. As a result, the U.S. tax code encourages many individuat investars to prefer to recelve Another firm, called Lootem Power 8 Water, an estabiished public utiwity compony, has been paying dividends for the past 20 years, This year tootem also announced that it will increase its oividends by 10%. Which ciass of investori is more likely to be pleased by Lootem's dividend announcement? S. With high tax rates who don't Eepend on current dividend income for lising expenses. s with low tax rates who depend on current dividend income for living expenses Atitm's dvidend policy determines its current clichtele of investors. As a resutt, the U.S. tax code encourages many individual investors to prefer to receive Another firm, called Lootem Power \& Water, an entablished public utility company, has b ends for the past 20 years. This year Lootem also announced that in wili increase its dividends by 10%. Which class of investors is me eased by Lootem's dividend announcement? Investors with high tax rates who dont depend on current dividend income for living expenses investors with low tax rates who depend on current dividend income for living expenses A firm's dividend policy determinas its current clientele of investors