A reason why management may have a long-term dividend payout ratio is that:
A)investors have a long-term investment horizon.
B)the present value of taxes paid on future dividend income is less than the present value of taxes paid on current dividend income.
C)management views dividends as a function of sustainable profits.
D)it assists management in long-term planning.

Question

Quizplus · Accepted Answer

Choice C is the best answer because it suggests that management views dividends as a function of sustainable profits, meaning that they prioritize maintaining consistent and sustainable profits before distributing dividends. This would lead to a long-term dividend payout ratio as the company aims to maintain a steady and stable payout to shareholders. Choices A, B, and D are not necessarily incorrect, but they do not provide as strong of a reason for a long-term dividend payout ratio as choice C.

A Reason Why Management May Have a Long-Term Dividend Payout