Which of the following statement completions is correct? If investors prefer dividends to capital gains,then A) The equilibrium return,r_s,will not be affected by a change in dividend policy because tax effects will offset these preferences. B) r_s will decrease as dividends are reduced. C) r_s will increase as dividends are reduced. D) r_s will decrease as the retention rate increases. E) Dividend policy as determined by the residual dividend model is the only dividend policy which will maximize the price per share of common stock.

Question

Quizplus · Accepted Answer

If investors prefer dividends to capital gains, reducing dividends would make the stock less attractive, leading to an increase in the required return, r_s.

Which of the Following Statement Completions Is Correct? If Investors