The following factors influence a firm's ability and/or willingness to pay dividends:
A) liquidity
B) borrowing capacity and access to capital markets
C) earnings stability
D) all of the above

Question

Quizplus · Accepted Answer

All of the above factors influence a firm's ability and/or willingness to pay dividends.

A) Liquidity: If a firm has sufficient liquidity to meet its current obligations and fund its future growth plans, it may be more willing to pay dividends. On the other hand, if a firm is facing liquidity constraints, it may need to conserve its cash resources and may not be able to pay dividends.

B) Borrowing capacity and access to capital markets: If a firm has easy access to capital markets and can borrow at a reasonable cost, it may be less reliant on dividend payments to fund its growth initiatives. Alternatively, if a firm has limited borrowing capacity and cannot access capital markets easily, it may need to rely more on dividend payments to finance its operations.

C) Earnings stability: A firm with stable earnings is more likely to pay dividends as it can forecast its future cash flows more accurately. On the other hand, a firm with volatile earnings may not be able to predict its future cash flows with certainty and may need to conserve its cash resources for uncertain times.

The Following Factors Influence a Firm's Ability And/or Willingness to Pay