A Firm Will Set a Low Payout Ratio and Finance

question 9

Multiple Choice

A firm will set a low payout ratio and finance by retaining earnings rather than through the sale of new common stock when the:

• A) cost of external equity is higher than the cost of internal equity.
• B) management wants to dilute the ownership.
• C) firm has no constraints in distributing dividends.
• D) firm has excess cash to distribute.
• E) firm has less investment opportunities to use its earnings.

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Definitions:

Written Notice

A formal notification provided in written form.

Bank Make Payment

The act of a bank processing a transaction and transferring the requisite funds from one account to another as instructed.

Confirmed in Writing

The process of documenting an agreement or decision on paper or electronically to provide a tangible record of the terms.

Midnight Deadline

A cutoff point often used in law and finance, indicating that transactions or actions must be completed by 11:59 PM to be considered valid for that day.