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Which of the following may tend to keep dividends low? I. a state law restricting dividends...

Which of the following may tend to keep dividends low? I. a state law restricting dividends in excess of retained earnings II. a term contained in bond indenture agreements III. the desire to maintain constant dividends over time IV. significant flotation costs

II and III only
I and IV only
II, III, and IV only
I, II, and III only
I, II, III, and IV
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Answer #1

The correct option is option 4.

All the above factors are responsible for keeping the dividends low.

  • If the floatation costs is significant, that can be a factor to pay low dividends. No floatation costs need to be paid if the firm retains it;'s earnings.
  • If the firm wants to maintain a constant payout ratio, then the dividends are kept low.
  • Sometimes, the outsiders funding the firm can keep a clause in the bond indenture to pay low dividends.
  • Paying dividends in excess of retained earnings can also be a clause of the state.
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