Question

TRis test does not allow backtracking. Changes to the answer after submission are prc * Question Completion Status: A Moving to the next question prevents changes to this answer. Question 10 Which one of the following is a drawback of cash dividends? Firms may have to forego positive net present value projects. Stock prices tend to increase as annual dividend amounts increase. Cash dividends support stock prices. Dividends are felt to be directly related to agency costs. Dividend-paying firms tend to attract a wider field of investors than do non-dividend-paying firms. A Moving to the next question prevents changes to this answer.

Answer 1

A company can use the net profits in two ways, either to reinvest in projects that have high earning potential or growth opportunity or distribute them to the shareholders as dividends. If distributed as dividends, there is lesser cash available to invest in growth opportunities and therefore the company might have to give up on some projects which have a positive NPV. So the correct option is the 1st one.

All other options are positives about cash dividends rather drawbacks