It Has Been Shown That, in the Absence of Taxes

question 209

Essay

It has been shown that, in the absence of taxes and other market imperfections, firm value will be
unaffected by dividend policy. Explain the logic behind this conclusion. Next, describe three real-
world factors that may cause one dividend policy to be preferable to another.

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Definitions:

Capacity

The maximum amount that something can contain or produce.

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead to individual units of output.

Capacity

The maximum level of output that a company can sustain to make a product or provide a service, influenced by available resources and constraints.

Machine-Hours

The total hours a machine is operated within a given period, often used to allocate manufacturing overhead.