The Fact That flOtation Costs Can Be Significant Is Justification

question 251

Multiple Choice

The fact that flotation costs can be significant is justification for:

• A) A firm to issue larger dividends than their closest competitors.
• B) A firm to maintain a constant dividend policy even if they frequently have to issue new shares of stock to do so.
• C) Maintaining a constant dividend policy even when profits decline significantly.
• D) Maintaining a high dividend policy.
• E) Maintaining a low dividend policy and rarely issuing extra dividends.

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Definitions:

MM Model

The Modigliani and Miller theory, which proposes that under certain conditions, the value of a firm is unaffected by its capital structure.

Corporate Taxes

Taxes imposed on the income or profit of corporations.

Personal Taxes

Personal taxes refer to taxes levied on the income, property, or wealth of individuals, as opposed to taxes imposed on companies or other legal entities.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity and preferred equity, constituting how a firm finances its overall operations and growth.