InOutOil Company is an oil drilling company. The company paid a dividend of $2.20 last year, and in the past its dividend has increased steadily by 4% per year. InOutOil just announced that its dividend will increase to $2.90 this year, and its stock price rose from $33 to $35 immediately after the announcement. Which of the following theories best explains why the stock price increased as it did? The clientele effect Dividend irrelevance theory The signaling hypothesis Modigliani and Miller argued that each shareholder can construct his or her own dividend policy. This statement is: False True 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. Indicate whether each factor is likely to make an investor prefer to receive more or fewer dividends. Prefer More Dividends Prefer Fewer Dividends Factor Dividends are taxed in the year they are received, while capital gains are taxed when the stock is sold. An investor is on a fixed income and depends upon returns from investment. The value of a dividend received today is known, but the value of a capital gain received in the future is uncertain. ABC Telecomm Inc. is expected to generate $1,400,000 in net income over the next year. ABC Telecomm Inc. has forecasted a capital budget of $89,000, and it wishes to maintain its current capital structure of 70% debt and 30% equity. IF ABC Telecomm follows a strict residual dividend policy and makes distributions to its shareholders in the form of dividends, its expected dividend payout ratio for this year will be