Which of the Following BEST Describes Restrictions on Cash Dividends

question 40

Multiple Choice

Which of the following BEST describes restrictions on cash dividends and treasury stock purchases?

• A) Restrictions on cash payments that are made to ensure higher reported profits
• B) Limits required by lenders or creditors to ensure that the company maintains adequate levels of equity
• C) Restrictions on payments made by the shareholders to lower federal income tax expense
• D) Limits that are established to boost sales revenues

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Definitions:

ATC

ATC, or Average Total Cost, is the per-unit cost of production, calculated by dividing the total cost by the quantity of output produced, comprising both fixed and variable costs.

Marginal Cost

The cost of producing one additional unit of a good or service, considered crucial in determining production levels and pricing decisions.

Average Variable Cost (AVC)

The variable cost of production divided by the number of units produced, reflecting the cost per unit excluding fixed costs.

Average Fixed Cost (AFC)

A firm’s total fixed cost divided by output (the quantity of product produced).