hos and Repurchases 3. 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 Purple Sage Producers Inc., and answer the question that follows: Purple Sage 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? It maximizes the firm's earnings per share. It maximizes the firm's stock price. It maximizes the firm's return on equity. It maximizes the firm's total assets. 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. 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 tre 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