Peanut Ltd

Peanut Ltd. is in a takeover battle to acquire Oil Distributing. The new firm would be known as Peanut Oil Inc. if the takeover obtains shareholder approval. Peanut has argued in the press that Oil is not maximizing shareholder return because it pays no dividends. How should this argument be received by Oil investors?

A) It will be dismissed by sophisticated investors who realize the dividend represents only part of a shareholder's total return.
B) It will be accepted by sophisticated investors because the lack of dividend represents management's lack of confidence in the future.
C) It will be dismissed by novice investors who are mainly looking for a capital gain.
D) It will be accepted by novice investors because the lack of dividend signals a reduction in agency costs.
E) It will be accepted by the financial media because the lack of dividend signals poor management.

Correct Answer:

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