Which of the Following Are the Two Financial Requirements That

question 29

Multiple Choice

Which of the following are the two financial requirements that the board of directors must consider when declaring a cash dividend?
i) the retained earnings account has a positive balance greater than the dividend.
Ii) the cash account has a balance greater than the amount of the dividend declared.
Iii) the company's earnings have shown growth for the last two quarters.
Iv) the shareholders have approved the declaration of the cash dividend.

• A)i and iii
• B)i and ii
• C)ii and iv
• D)ii and iii

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Definitions:

WACC

The Weighted Average Cost of Capital, a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.

Retained Earnings

The portion of net earnings not paid out as dividends but retained by the company to be reinvested in its core business or to pay debt.

CAPM Approach

The Capital Asset Pricing Model, a formula used to determine the expected return of an investment based on its risk relative to the market.

Cost of Equity

The return a firm theoretically pays to its equity investors, i.e., shareholders, to compensate them for the risk they undertake by investing their capital.