FIN 534 - Homework Chapter 14 Answers

1. Myron Gordon and John Lintner believe that the required return on equity increases as the dividend payout ratio is decreased. Their argument is based on the assumption that

a. investors require that the dividend yield and capital gains yield equal a constant.

b. capital gains are taxed at a higher rate than dividends.

c. investors view dividends as being less risky than potential future capital gains.

d. investors value a dollar of expected capital gains more highly than a dollar of expected dividends because of the lower tax rate on capital gains.

e. investors are indifferent between dividends and capital gains.

1. Which of the following should not influence a firm's dividend policy decision?

a. A strong preference by most shareholders...