If a Firm Pays Out All of Its Earnings as Dividends

question 41

True/False

If a firm pays out all of its earnings as dividends and its stockholders then elect to have all of their dividends reinvested,the company should reconsider its dividend policy and possibly move to a lower dividend payout ratio.

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Definitions:

Agency

A relationship where one party, the agent, is authorized to act on behalf of another, the principal, in dealings with third parties.

Necessity

The condition or situation of being required or indispensable, often invoked in legal contexts where actions are taken out of an unavoidable need.

Contract

A legally binding agreement between two or more parties.

Warranty of Authority

An assurance provided by an agent to a third party that they have the authority to act on behalf of another person or entity in a legal or business transaction.