Given a compromise dividend policy, firms prefer limiting NPV projects to pay dividends.

Question

Quizplus · Accepted Answer

In a compromise dividend policy, firms balance the desire to pay dividends with the need to retain earnings for investment. NPV projects are those that have a positive net present value, meaning that they are expected to generate more cash flow than they cost. By limiting NPV projects to pay dividends, firms can ensure that they have sufficient cash flow to meet their dividend obligations while also investing in projects that will create value for shareholders in the long run.

Given a Compromise Dividend Policy, Firms Prefer Limiting NPV Projects