Assume that stockholders have exactly the same information as the managers who m
ID: 2635072 • Letter: A
Question
Assume that stockholders have exactly the same information as the managers who make the financial decisions of the firm. If the managers always make rational investment decisions, that is, they pursue only positive net present value capital budgeting projects, which of the following dividend policies should investors prefer the managers follow? Consider everything else is equal.
A) residual dividend
B) constant payout ratio
C) stable, predictable dividend
D) low regular dividend plus extras
E) It shouldn't matter which dividend policy the managers follow because each policy should maximize the value of the firm.
A) residual dividend
B) constant payout ratio
C) stable, predictable dividend
D) low regular dividend plus extras
E) It shouldn't matter which dividend policy the managers follow because each policy should maximize the value of the firm.
Explanation / Answer
Answer: Letter E
Reason: Because managers have the discretion whatever policy to follow as they are given the position to decide unless a particular decision obviously indicates a negative effect on the operation.