Question

In: Finance

Microsoft announced huge profits and its first-ever dividend, but its stock price dropped. Why? A. Investors...

Microsoft announced huge profits and its first-ever dividend, but its stock price dropped. Why?

A.

Investors value free cash flows and not dividends
B.

Paying a dividend increases Microsoft's cost of capital
C.

The dividend was viewed as a negative signal about Microsoft's expected growth rate
D.

None of the above. Investors were being totally irrational

Solutions

Expert Solution

Option c is correct option.When dividends are paid out retention ratio decreases and hence growth also decreases.

jeff jeffy answered 3 years ago
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