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:

Core Values

The fundamental, passionate, and enduring principles of an organization that guide its conduct over time.

Marketing Actions

Strategic steps taken by companies to promote and sell their products or services to their target audience.

Sales and Profitability

Key indicators of a business's financial health, with sales referring to the revenue from goods or services sold, and profitability indicating the extent to which this revenue exceeds costs.

Market Segmentation

Market segmentation is the process of dividing a market of potential customers into groups, or segments, based on different characteristics such as demographics or behaviors.