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Company treasurer: Even if the dividend payments that companies make to their shareholders were to be taxed at a higher rate, I believe that our stock price would not be negatively affected. Dividend-paying stocks like ours have performed exceptionally well during the last few years, providing investors with greater returns than most other investment options. As the population ages, there will be even more demand for the income provided by dividend-paying stocks. Although retail investors will be greatly affected by a higher dividend tax, it is important to recognize that the majority of our company's stock is owned by institutional investors that are exempt from dividend taxation.
According to the information provided, the treasurer's primary focus is to discuss the potential effect that an increase in the _1 could have on the 2_. Select for 1 and for 2 the options that complete the statement in the manner that most accurately reflects the given information.
company's stock price
dividend tax rate
number of institutional investors
tax paid by institutional investors
company's dividend payments
| Passage Statement | Analysis & Implications |
| "Even if the dividend payments that companies make to their shareholders were to be taxed at a higher rate, I believe that our stock price would not be negatively affected." |
|
| "Dividend-paying stocks like ours have performed exceptionally well during the last few years" |
|
| "As the population ages, there will be even more demand for the income provided by dividend-paying stocks" |
|
| "Although retail investors will be greatly affected by a higher dividend tax, it is important to recognize that the majority of our company's stock is owned by institutional investors that are exempt from dividend taxation" |
|
The question asks us to identify what the treasurer's primary focus is discussing:
Based on the opening statement, we can definitively conclude:
The treasurer explicitly states this relationship in the first sentence!
| Answer Choice | What It Claims | Could Work for Part 1? | Could Work for Part 2? |
| company's stock price | The value of company shares | No - this is what could be affected, not what increases | Yes - treasurer says this won't be negatively affected |
| dividend tax rate | The percentage tax on dividends | Yes - treasurer discusses "taxed at a higher rate" | No - this is what increases, not what's affected |
| number of institutional investors | Count of tax-exempt shareholders | No - not discussed as increasing | No - not the focus of impact |
| tax paid by institutional investors | Tax amount from institutions | No - they're exempt from dividend tax | No - can't be affected if they're exempt |
| company's dividend payments | Amount paid to shareholders | No - tax rate increases, not payment amount | No - treasurer discusses stock price impact |
Part 1 (what could increase): dividend tax rate
Part 2 (what could be affected): company's stock price
Reading the completed statement: "the treasurer's primary focus is to discuss the potential effect that an increase in the dividend tax rate could have on the company's stock price."
This perfectly captures the treasurer's opening thesis and the entire focus of the passage!