A firm may be legally prevented from paying dividends if

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If a firm is legally insolvent, meaning its liabilities exceed its assets, it may be prevented from paying dividends by law. This is because dividend payments would further reduce the firm's assets and worsen its financial position. Additionally, paying dividends in this situation could be considered a violation of the firm's fiduciary duty to creditors. The other options do not necessarily prevent a firm from paying dividends - a debt obligation due within the next month may be paid from other sources, having assets greater than liabilities is a desirable financial position, and saving cash for projects is a prudent financial decision.

A Firm May Be Legally Prevented from Paying Dividends If