A firms 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 firms value and the investors in different ways.

Some analysts have argued that a firms 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 residual dividend model

The clientele effect

The signaling hypothesis

Dividend irrelevance theory

Suppose a firm generates a lot of cash but has limited investment opportunities. Is this stock more likely to be a utility stock or a technology stock? In addition, is the stock more likely to provide a high or low dividend yield?

A utility stock that has a low dividend yield

A technology stock that has a low dividend yield

A utility stock that has a high dividend yield

A technology stock that has a high dividend yield

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:

the information content effect.

the clientele effect.