The Fact That Flotation Costs Can Be Significant Is Justification

question 45

Multiple Choice

The fact that flotation costs can be significant is justification for

• A)maintaining a high dividend policy.
• B)maintaining a low dividend policy and rarely issuing extra dividends.
• C)maintaining a constant dividend policy even when profits decline significantly.
• D)a firm to issue larger dividends than its closest competitors.
• E)a firm to maintain a constant dividend policy even if it frequently has to issue new shares of stock to do so.

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Definitions:

Outstanding Checks

Checks that have been written and recorded in accounting books but have not yet been cashed or cleared by the bank.

Bank Statement

A summary of all transactions mailed to the depositor or made available online by the bank each month.

Petty Cash System

A method used by businesses to manage small, daily expenses, involving a small store of cash on hand.

Cash Payments

Financial activities that result in the spending of cash to fulfill debts or acquire products and services.