Which of the Following Are Not Legitimate Constraints on the Dividends

question 71

Multiple Choice

Which of the following are not legitimate constraints on the dividends a firm will pay to shareholders?

• A)Dividends must not eat into legal capital.
• B)Bondholders may have covenants limiting the amount of the dividend.
• C)Dividends may be constrained by the amount of cash a firm has.
• D)All are legitimate constraints on the dividends that firms choose to pay to shareholders.

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Definitions:

Stock Dividend

A payment made in the form of additional shares rather than cash, reflecting a company's dedication to reinvesting in its growth.

Par Value

A nominal value assigned to a security, such as a share of stock, representing its legal capital per share.

Retained Earnings

Profits that a company has decided to re-invest in the business instead of paying out to shareholders as dividends.

Liquidating Dividend

A type of dividend paid by a company to its shareholders from its capital rather than its earnings, typically during the partial or full liquidation of the company.