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 needs. This circumstance is an illustration of: The free cash flow hypothesis The signaling hypothesis The residual dividend policy The clientele effect Consider the scenario, and answer the question that follows: Markum's Co. is an oil drilling company. The company paid a dividend of $1.50 last year, and in the past its dividend has increased steadily by about 4% a year. Markum's Co. just announced that its dividend will increase to $2.10 this year, and its stock price rose from $28 to $30 immediately after the announcement. Which of these best explains why the stock price increased as it did? The clientele effect The signaling hypothesis Dividend irrelevance theory Which of these statements is true? Taxes on dividends are paid when the stock is sold. Taxes on dividends are paid in the year that they are received. Consequently, the tax code encourages many individual investors to prefer 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