Which of the Following Explanations Is NOT a Possible Benefit

question 13

Multiple Choice

Which of the following explanations is NOT a possible benefit of dividends?

• A) Some investors prefer dividend-paying stocks and will be willing to pay a higher price for stocks with regular dividends.
• B) Paying out large regular dividends can force management to regularly raise more capital. The extra scrutiny involved in raising capital can increase the incentives of management to run the company efficiently.
• C) Dividends can be used to manage the capital structure of a company.
• D) Paying dividends reduces the probability that a firm will enter financial distress.

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Definitions:

Corporation

A legal entity that is separate and distinct from its owners, providing them with limited liability, and is permitted to own assets, incur liabilities, and sell securities, among other rights.

Partnership

A legitimate business model involving collaboration between two or more people in managing and dividing earnings.

Potential Loss

The possible financial harm or loss a business could suffer due to unforeseen events or risks.

Investment

The allocation of resources, usually money, in expectation of earning a return or some form of benefit in the future.