A Corporation Has Been Paying Out $1 Million Per Year

question 48

Multiple Choice

A corporation has been paying out $1 million per year in dividends for the past several years.This year,the company wants to pay the $1 million dividend,but can't.All of the following are reasons the company cannot continue its dividend payment policy EXCEPT

• A) the company's net income this year is less than $1 million.
• B) the company's retained earnings balance at the end of the year is less than $1 million.
• C) the company's cash balance is less than $1 million.
• D) the company's liabilities exceed its assets.

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Definitions:

Profit Margin

A financial metric that measures the amount of net income earned with each dollar of sales generated by comparing net income and revenue.

Days' Sales

A financial metric that calculates the average time it takes for a company to convert its inventory into sales.

Receivables Ratio

The Receivables Ratio, also known as the Accounts Receivable Turnover Ratio, measures how efficiently a company collects cash from its customers by comparing sales to the average receivables.

Outstanding Accounts

Accounts or invoices that have been billed but not yet paid by customers.