Why May a Large Increase in Earnings Not Translate into a Large

question 8

Multiple Choice

Why may a large increase in earnings not translate into a large increase in dividends?

• A) The earnings will be taxed.
• B) Some investors may prefer capital gains.
• C) Managers wish to assess the earning's persistence.
• D) The earnings may already be a part of retained earnings.

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Definitions:

Price Inelastic

Describes a situation where the quantity demanded or supplied of a good or service changes little when its price changes.

Short Run

A time period in economics during which at least one input or factor of production is fixed and cannot be changed, limiting the immediate response to changes in demand or technology.

Long Run

A period in economics sufficient for all factors of production and costs to be variable, allowing firms to adjust to market conditions fully.

Bumper Crops

An exceptionally large crop yield, often much higher than average.