While external funding needs can be approximated by subtracting cash dividend payments from cash flow from operations,the decision is not simple because

Question

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Dividend policy can change over time, making it difficult to rely on dividend payments as a consistent source of funds for external financing needs. Additionally, raising capital externally often involves legal and transaction costs, which can be higher than simply retaining and reinvesting internal cash flow. Therefore, both factors (a) and (b) contribute to the complexity of the decision to seek external funding.

While External Funding Needs Can Be Approximated by Subtracting Cash