The Ability of Shareholders to Undo the Dividend Policy of the Firm

question 26

Multiple Choice

The ability of shareholders to undo the dividend policy of the firm and create an alternative dividend payment policy via reinvesting dividends or selling shares of stock is called (a) :

• A) MM Proposition I.
• B) capital structure irrelevancy.
• C) homemade leverage.
• D) homemade dividends.

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Definitions:

Discount on Bonds Payable

The difference between the face value of a bond and its selling price when the bond is sold for less than its face value.

Bonds Payable

Long-term liabilities represented by promissory notes issued by a company to raise capital, to be repaid at a future date.

Installment Note

A debt instrument that requires the borrower to make regular payments (installments) of principal and interest over a set period until the total debt is paid.

Journal Entry

A record in the books of accounts that represents a transaction and its effect on various accounts.