Which of the Following Should Not Influence a Firm's Dividend

question 27

Multiple Choice

Which of the following should not influence a firm's dividend policy decision?

• A) A strong preference by most shareholders for current cash income versus capital gains.
• B) Constraints imposed by the firm's bond indenture.
• C) The fact that much of the firm's equipment has been leased rather than bought and owned.
• D) The fact that Congress is considering changes in the tax law regarding the taxation of dividends versus capital gains.
• E) The firm's ability to accelerate or delay investment projects.

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Definitions:

Cash Payback Method

A capital budgeting technique that calculates the time required to recoup the cost of an investment, based on the cash inflows generated by the investment.

Net Cash Inflows

The difference between all cash received and all cash payments over a period, reflecting the net change in cash position.

Fixed Asset

Long-term tangible assets, such as machinery, buildings, and land, used in the operation of a business that are not expected to be consumed or converted into cash within a year.

Net Income

The net income of a company, which is the remaining amount of total revenues after deducting all expenses, taxes, and costs.