7. Dividend payments cannot exceed the balance sheet item \"Retained camings.\"

Question

7. Dividend payments cannot exceed the balance sheet item "Retained camings." This is known as the a. stock split rule b. free cash flow rule c. constant payout rule d. impairment of capital rule e. dividend irrelevance rule 8. Which of the following statements is true of marginal cost of capital? a. All else equal, an increase in the tax rate would decrease the marginal cost of debt c. All else equal, an increase in a company's stock price will increase the marginal cost d. All else equal, an increase in the capital raised in a period will decrease the marginal e. All else equal, an increase in the weighted cost of capital will decrease the marginal capital of retained earnings. of issuing new common equity. cost of debt capital. cost of retained capital.

Explanation / Answer

Question (7)

Answer: option (d) impairment of capital rule.

Because, this rule is a state-level legal restriction on corporate dividend policy. It basically limits the amount of dividends a company can pay out to shareholders. This rule ensure creditors about their claims.

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