A valid reason for a firm to reduce or eliminate its cash dividends is if the firm has just received a patent on a new product for which there is strong market demand and it needs the funds to bring the product to the marketplace.

Question

Quizplus · Accepted Answer

Firms may reduce or eliminate cash dividends to redirect funds towards high-potential investments, such as bringing a new, patented product with strong market demand to the marketplace, as this can offer higher returns to shareholders in the long term.

A Valid Reason for a Firm to Reduce or Eliminate