In the Real World, Dividends

question 25

Multiple Choice

In the real world, dividends

• A) are usually more stable than earnings.
• B) fluctuate more widely than earnings.
• C) tend to be a lower percentage of earnings for mature firms.
• D) are usually changed every year to reflect earnings changes, and these changes are randomly higher or lower, depending on whether earnings increased or decreased.
• E) are usually set as a fixed percentage of earnings, e.g., at 40% of earnings, so if eps = $2.00, then dps will equal $0.80. once the percentage is set, then dividend policy is on "automatic pilot" and the actual dividend depends strictly on earnings.

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Definitions:

Charging-Order Creditor

A creditor's legal right to attach a debtor's interest in an LLC or partnership, as a means to satisfy the debtor's outstanding obligation.

Lien Creditor

A creditor who has a legal right or claim against a debtor's property as security for a debt or charge.

Partnership Distributions

The sharing out of profits, assets, or earnings among the partners of a partnership based on the agreed-upon terms.

Sole Proprietorship

A business structure where a single individual owns and operates the business, bearing all the business's financial responsibilities and obligations.