Evaluating Dividend Policy
Ford Motor Company is an internationally known manufacturer of automobiles and trucks. The company recently lost over $12 billion in a single year of operations. Despite that staggering loss, the company issued the following press release:
DEARBORN, Mich., July 13 /PRNewswire-FirstCall/―The Board of Directors of Ford Motor Company (NYSE: F) today declared a third quarter dividend of 5 cents per share on the company’s common stock. The dividend, which is payable onSept. 1 to shareholders of record on Aug. 2 is a reduction of 5 cents per share from the dividend paid in the second quarter.
Required:
1. Explain why Ford can pay dividends despite its loss.
2. What factors did the board of directors consider when it declared the dividends?
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