A Valid Reason for a Firm to Reduce or Eliminate

question 102

True/False

A valid reason for a firm to reduce or eliminate its cash dividends is if the firm has just received a patent on a new product for which there is strong market demand and it needs the funds to bring the product to the marketplace.

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Definitions:

Fixed Expenses

Expenses that do not fluctuate with changes in production level or sales volume, such as lease payments, insurance, and property taxes.

Margin of Safety

The difference between actual or expected sales and the break-even sales, measured to assess the risk of incurring losses.

Contribution Margin

The amount by which sales revenue exceeds variable costs, indicating how much contributes to covering fixed costs and generating profit.

Capital Intensive

Describes industries or businesses that require large amounts of investment in heavy machinery, equipment, or other capital assets to produce goods or services.