1. Which of the following statements about dividend policies is correct?
A. One advantage of dividend reinvestment plans is that they allow shareholders to avoid paying taxes on the dividends that they choose to reinvest.
B. One key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy.
C. One reason that companies tend to avoid stock repurchases is that dividend payments are taxed at a lower rate than gains on stock repurchases.
D. The clientele effect suggests that companies should follow a stable dividend policy.
E. None of the above
2. Reuth, Inc. is splitting its stock 7-for-3. The pre-split stock price is $90.00 per share, and the firm believes that its total market value will increase by 7% as a result of improved liquidity that it thinks would follow the split. What is the stock's expected price following the split?
A. $13.76
B. $32.10
C. $41.27
D. $224.70
E. None of the above