Since lenders are generally reluctant to grant loans to a firm to pay dividends, the firm's ability to pay cash dividends is generally constrained by the amount of excess cash available.

Question

Quizplus · Accepted Answer

Lenders typically prefer that a firm uses its cash flow to repay loans rather than distribute it as dividends. Therefore, a firm's ability to pay cash dividends is generally limited to its excess cash flow, which is the amount of cash left over after all necessary expenses and investments are financed.

Since Lenders Are Generally Reluctant to Grant Loans to a Firm