A valid reason for a ﬁrm to reduce or eliminate its cash dividends is if the ﬁrm is on the verge of
violating a bond restriction which requires a current ratio of 1.8 or higher.

Question

Quizplus · Accepted Answer

If a firm is about to violate a bond restriction that requires a current ratio of 1.8 or higher, it may have to reduce or eliminate its cash dividends to conserve cash and improve its current ratio.

A Valid Reason for a ﬁRm to Reduce or Eliminate