In the Real World, Dividends

question 13

Multiple Choice

In the real world, dividends

• A) are usually more stable than earnings.
• B) fluctuate more widely than earnings.
• C) tend to be a lower percentage of earnings for mature firms.
• D) are usually changed every year to reflect earnings changes, and these changes are randomly higher or lower, depending on whether earnings increased or decreased.

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Definitions:

Variable Expenses

Costs that vary in direct proportion to changes in the level of production or sales volume, such as materials or sales commissions.

Fixed Expenses

Expenses that remain constant regardless of the amount of goods produced or sold in a brief timeframe, including lease payments, wages, and insurance premiums.

Annual Profit

The net earnings of a company over a one-year period, calculated as revenue minus expenses, taxes, and costs.

Margin of Safety

The difference between actual or expected sales and sales at the break-even point, indicating the risk margin for not reaching profit.