BUISENESS MANAGEMENT
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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When the earnings of the company are high
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When a company has a lucrative forthcoming business opportunity(Growth opportunity )
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When the cash flow position of the company is strong
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None of the above
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Detailed explanation-1: -Explanation: When a company has a high profit earning capability in a future project then the company is not likely to declare a high dividend. The retained earnings will become their investment for the future project.
Detailed explanation-2: -A company having higher and stable earnings can declare higher dividends than a company with lower and unstable earnings.
Detailed explanation-3: -Answer and Explanation: Answer is d. The fact that much of the firm’s equipment has been leased rather than bought and owned.
Detailed explanation-4: -◦Modigliani-Miller have argued that firm’s dividend policy is irrelevant to the value of the firm. ◦According to this approach, the market price of a share is dependent on the earnings of the firm on its investment and not on the dividend paid by it.
Detailed explanation-5: -Legal Constraints A firm’s capital cannot be used to make dividend payments. Dividends must be paid out of a firm’s present and past net earnings. Dividends cannot be paid when the firm is insolvent. The first restriction is termed the capital impairment restriction.