OPTIONS FOR THE FIRST BLANK ARE: DIVIDENDS/CAPITAL GAINS

OPTIONS FOR THE SECOND BLANK ARE: clientele effect/ information content

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 impac the firm's value and the investors in different ways. Consider the scenario and answer the question that follows: Scorecard Corp. 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 about 4% a year. Scorecard Corp. 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 these best explains why the stock price increased as it did? The clientele effect The signalling hypothesis MM dividend irrelevance 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 system encourages many individual investors to prefer 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 clientele effect The information content effect