The Problem with the Regular Dividend Policy from a Firm's

question 60

Multiple Choice

The problem with the regular dividend policy from a firm's perspective is that ________.

• A) it regularly pays dividends which fluctuate with earnings
• B) if the firm's earnings drop, the dividends may be low
• C) even when earnings are low, the company must pay a fixed dividend
• D) it increases the shareholders' uncertainty

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Definitions:

Minimum Acceptable Return

The lowest return on investment that a person or entity is willing to accept, often used in capital budgeting and investment planning.

Invested Assets

Assets that are allocated into various investment vehicles such as stocks, bonds, real estate, or other securities with the expectation of earning a return.

Operating Income

The profit realized from a business's operations, after deducting operating expenses like wages and cost of goods sold from gross profit.

Investment Turnover

A measure of a company's ability to generate sales from its investments; calculated by dividing sales by average invested assets.