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. In some cases, analysts notice that groups of similar investors tend to flock to stocks that have dividend policies consistent with their financial needs. This circumstance is an illustration of: O the residual dividend policy. O the clientele effect. dividend irrelevance theory. O the signaling hypothesis. Green Mountain Producers Inc. is an oil drilling company and has some free cash flow that is not expected to be used to finance future growth or potential investment projects. The company plans to distribute its free cash flow to its shareholders but is still deciding whether the distribution should take the form of a stock repurchase or the payment of a cash dividend. Which of the following is a characteristic of a firm's optimal dividend policy? O It maximizes the firm's stock price. It maximizes the firm's return on equity. O It maximizes the firm's earnings per share. It maximizes the firm's total assets. Modigliani and Miller argued that each shareholder can construct his or her own dividend policy. This statement is: True. False Modigliani and Miller also pointed out that many institutional investors do not pay taxes and can buy and sell stocks with very low transaction costs. For these investors, dividend policy is relevant than it is for an individual investor. more Some researchers and analysts have r trend in which firms that increase their dividends see an increase in their stock price. The theory of information content explains t less omenon. 27