The information content of a dividend increase generally signals that:
A)the firm has a one-time surplus of cash.
B)the firm has few, if any, net present value projects to pursue.
C)management believes earnings growth will be strong going forward.
D)the firm has more cash than it needs due to a decline in future orders.
E)dividends thereafter will be lower.

Question

Quizplus · Accepted Answer

A dividend increase generally signals that management believes the firm's earnings growth will be strong going forward, making it confident enough to share some of its profits with shareholders. It is not necessarily a sign of a one-time surplus of cash or a lack of net present value projects to pursue. It is also not an indication that dividends thereafter will be lower. A decline in future orders would likely result in a decrease in dividends rather than an increase.

The Information Content of a Dividend Increase Generally Signals That