A company’s dividend policy can also be affected by factors internal to the organization and by the external (macroeconomic) environment in which the business operates. In the table that follows, identify which factors, in general, tend to favor high or low dividend payout ratios.FactorFavors a High PayoutFavors a Low PayoutA company has a large retained earnings balance on its balance sheet but has very little cash and almost no other liquid assets. A company has an established credit line that it can access when it needs an external source of funding. A closely held firm has a majority of its shareholders in high marginal tax brackets. Each factor higher or lower payoutHaving the ability to accelerate or delay projects makes it easier or harder for a firm to adhere to a stable dividend policy. If management is concerned with keeping control of the company, it will be likely to retain more or less earnings than it otherwise would to avoid diluting control by issuing new stock to raise capital.

Dividend Policy is the policy of a company where the distribution of retained earnings will be given…

Answered: A company’s dividend policy can also be…

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter14: Completing A Quality Audit

Section: Chapter Questions

Problem 24CYBK

See similar textbooks

Related questions

Question

A company’s dividend policy can also be affected by factors internal to the organization and by the external (macroeconomic) environment in which the business operates. In the table that follows, identify which factors, in general, tend to favor high or low dividend payout ratios.

Factor	Favors a High Payout	Favors a Low Payout
A company has a large retained earnings balance on its balance sheet but has very little cash and almost no other liquid assets.
A company has an established credit line that it can access when it needs an external source of funding.
A closely held firm has a majority of its shareholders in high marginal tax brackets.

Each factor higher or lower payout

Having the ability to accelerate or delay projects makes it easier or harder for a firm to adhere to a stable dividend policy.

If management is concerned with keeping control of the company, it will be likely to retain more or less earnings than it otherwise would to avoid diluting control by issuing new stock to raise capital.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.