Question1: JBC Corp. declared a dividend of dollar 2 per share, which was an increase of 25% from the prior year, yet JBC Corp. stock declined by 3 percent the day of the announcement. RBG Corp. announced a dividend of $2 per share, which was the same as the prior year, & its stock increased in value by 2 percent on the day of the announcement. These events could be most readily explained by the _____.
[A] Expectations theory
[B] Residual dividend theory
[C] Information effect
[D] Clientele effect
Question2: According to the clientele effect, _____.
[A] Companies should change their dividend policies to please their target group of investors
[B] Even if capital markets are perfect, dividend policy still matters
[C] Companies should have dividend payout ratios of either 100% or 0%
[D] Companies should avoid making capricious changes in their dividend policies
Question3: Which of the following statements would be consistent with the Dividend Irrelevance Theory?
[A] Investors are indifferent whether stock returns come from dividend income or capital gains income.
[B] There is no relationship between a firm's dividend policy and the value of its common stock.
[C] Perfect capital markets are assumed to exist which allow investors to buy and sell stock without incurring any transaction costs.
[D] all of the above
Question4: Dividend changes may be applied by management as a credible communication tool to signal investors about future earnings under which of the following dividend policy theories?
[A] The information effect
[B] The expectations theory
[C] The clientele effect
[D] The residual dividend theory