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 Inc. is an oil drilling company. The company 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 share 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 clientele effect The signaling hypothesis MM dividend irrelevance Which of the following statements is true? Taxes on dividend income are paid in the year that they are received. Taxes on dividend income s are paid when the stock is sold. As a result, the U.S. tax code encourages many individual investors to prefer to receive Another firm, called Robbem Power & Water, an established public utility company, has been paying dividends for the past 20 years. This year Robbem also announced that it will increase its dividends by 10%. Which class of investors is more likely to be pleased by Robbem's dividend announcement? Investors with high tax rates who don't 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 determines its current clientele of investors