1) Distinguish among: cash dividends, property dividends, liquidating dividends, and stock dividends.
2) What are the principal considerations of a board of directors in making decisions involving dividend declarations? Discuss briefly.
Answer
There are a few considerations that a board of directors must take before declaring dividends.
- Cash Dividends: Cash dividends come from retained earnings on the balance sheet. Also, if the preferred stock is cumulative, the company must pay past dividends before paying the current dividends.
- Tax Factors: Unlike interests, dividends are not tax deductible and are paid from after-tax income. Also, dividends increase the taxable income of the shareholders.
- Growth Factors: Dividends limit the amount of money the company can invest in profit-making operations. The company must decide what is the best way to maximize shareholders wealth.
- Cost Factors: Dividends reduce the amount of money the company can use to reduce its debt. The company may use dividend cash to improve long-term financial health of a company.
- Other Factors: Dividend cut shows that the company is in trouble whereas a dividend boost shows that a company is stagnant or in decline.
References: https://smallbusiness.chron.com/mean-company-shows-dividend-21069.html (Links to an external site.)
Instruction:
Write the answer for question no 1
write the peer reviw for question 2 and answer is there.
