Assigomen 14-Distributions to Shareholders: Dividends and Share Repurchases Due

Question

Assigomen 14-Distributions to Shareholders: Dividends and Share Repurchases Due Today at 11:59 PM CST Consider the case of Blue Water Producers Inc., and answer the question that follows: Blue Water Producers Inc. is an oil drilling company and has some free cash flow that is not expected to be used to finance future growth or potential investment projects. The company plans to distribute its free cash flow to its shareholders but is stil deciding whether the distribution should take the form of a stock repurchase or the payment of a cash dividend. Which of the following is a characteristic of a firm's optimal dividend policy? O It maximizes the firm's earnings per share. It maximizes the firm's return on equity It maximizes the firm's stock price. O It maximizes the firm's total assets Modigliani and Miller argued that each shareholder can construct his or her own dividend poloy. This statement is: True O False

Explanation / Answer

C.It maximizes the firm's stock price.

An optimal dividend policybalances the dividends paid and the future growth in order to see that the firm's stock price is maximized.

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