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Which of the following is the most likely reason for a corporation to cut its dividend? Select one: a
Which of the following is the most likely reason for a corporation to cut its dividend?
Select one:
a.
To make the firm more attractive to growth oriented investors.
b.
Because the company believes that existing dividend levels are no longer sustainable.
c.
To keep the firm's price within its optimal range
d.
To shelter the shareholders from double taxation.
Expert Solution
ANS: Option (B) (Because the company believes that existing dividend levels are no longer sustainable.)
Dividend are the reward that a company gives to their shareholders for investing their monies & bearing the risk. Companies generally cut the dividend because of their financial challenges or for preparing themselves for buy back or Merger-Acquisition, or if management of the company found that existing dividend levels are no longer sustainable etc.
So,In the above case, the Option (B) is most likely reason for the company to cut its dividend.
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