1) Distinguish among: cash dividends, property dividends, liquidating dividends, and

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. 

  1. 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.
  2. 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. 
  3. 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.
  4. 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.
  5. 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.

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