A Compromise Dividend Policy Advocates

question 322

Multiple Choice

A compromise dividend policy advocates:

• A) Rejecting positive net present value projects in order to maintain constant dividends.
• B) Varying the debt-equity ratio so that the firm can sell equity to fund increases in the dividends.
• C) Selling equity to maintain a high dividend policy.
• D) Trying to avoid cutting back on either positive net present value projects or dividends.
• E) Strict adherence to short-run debt-equity ratios at the expense of constant dividends.

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Definitions:

Bargain Purchase

Occurs when a company acquires an asset at a price significantly below its fair market value.

Subsidiary

A company that is completely or partly owned and partly or entirely controlled by another company, known as the parent company.

Assets

Resources controlled by a business from which future economic benefits are expected to flow to the business.