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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 policles consistent with their financial needs. This circumstance is an illustration of: the signaling hypothesis. the cllentele effect. dividend irrelevance theory. the residual dividend policy. Consider the case of Purple Sage Producers Inc., and answer the question that follows: Purple Sage Producers Inc. Is an oll-drilling company. The company paid a dlvidend of $1.75 last year, and, in the past, its dividend has Increased steadily by about 4% a year. Purple Sage just announced that its dividend will increase to $2.50 this year, and its share price rose from $30 per share to $33 per share immedlately after the announcement. Which of the following best explains why Purple Sage's stock price increased as it did? Dividend Irrelevance theory The signaling hypothesis The cllentele effect Which of the following statements is true? Taxes on dividend income are paid when the stock is sold. Taxes on dividend income are paid in the year that they are recelved. As a result, the U.S. tax code encourages many Individual investors to prefer to recelve Another firm, called Robbem Power \& Water, an established public utlilty 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 llkely to be pleased by Robbem's dividend announcement? Investors with low tax rates who depend on current dividend income for IIving expenses Investors with high tax rates who don't depend on current dividend income for llving expenses A flrm's dividend pollcy determines its current cllentele of investors