After Being Spun-Off by a Venture Capital Company, Web Dynamics

question 23

Multiple Choice

After being spun-off by a venture capital company, Web Dynamics Ltd., an e-commerce site design company, has had difficulty finding debt financing due to high rates of its hardware and software obsolescence. How much dividends should Web Dynamics pay out?

• A) No or low dividends to use the cash for reinvestment in the company.
• B) High dividends to increase the profile of the company and improve chances for debt financing.
• C) No or low dividends to increase equity, improving the ROCE ratio and its appeal to lenders.
• D) Pay high dividends to attract financing through common share issue.
• E) Pay high dividends to reduce taxes by writing off the cost of dividends against income, thus, freeing up income for reinvestment in the company.

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Definitions:

Original Investigation

A detailed study or research conducted for the first time to gain new knowledge or insights.

New Knowledge

Information or insights gained that were previously unknown, contributing to the understanding or development of a subject area or field.

Research

A systematic investigation aimed at acquiring new knowledge, which in a business context can lead to new findings that may be applied to improving processes, products, or services.

Identifiability Criteria

The requirements that must be met for an asset or liability to be recognized separately in the financial statements, often relating to control, future economic benefits, or valuation.