Chapter 14, Problem 2Q

Summary Introduction

To explain: Whether it is totally irrational for a firm to sell a new issue stock and to pay cash dividends during a year.

Introduction:

Retained Earnings: A company has kept a certain amount of its net earnings to reinvest into the business or to pay its debt instead of paying it as a dividend is known as the retained earnings. It is recorded under the shareholder’s equity in balance sheet.