A Potential Downside to Using Dividends as the Plug Item

question 41

Multiple Choice

A potential downside to using dividends as the plug item is that:

• A) changes in dividends may send shareholders mixed signals.
• B) the plan may suggest negative dividends.
• C) the firm may have to borrow cash to pay dividends.
• D) shareholders may receive an excessive return.

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Definitions:

Merchant

An individual or business that sells goods or services in a commercial setting.

Destroyed Through Fire

Destroyed through fire describes the complete loss or devastation of property, goods, or structures as a result of a fire outbreak, often leading to insurance claims and legal considerations.

Common-Carrier Delivery Contract

A type of contract in which purchased goods are delivered to the buyer via an independent contractor, such as a trucking line.

Independent Contractor

An individual or entity contracted to perform work for another entity as a non-employee.