With regard to dividend payments, which of the following is included in the contractual constraints imposed by loan agreements?
A) limiting the payment to suppliers
B) limiting the percentage of earnings that can be paid out in dividends
C) sustaining a constant dividend payout ratio
D) making fixed payment to equityholders

Question

Quizplus · Accepted Answer

Loan agreements often include restrictions on dividend payments, including a limit on the percentage of earnings that can be paid out in dividends. This is because lenders want to ensure that the company has enough cash flow to meet its debt obligations before making payments to shareholders. Option A is not directly related to dividend payments, option C is not a contractual constraint, and option D is a requirement for equityholders but not a contractual constraint on dividend payments.

With Regard to Dividend Payments, Which of the Following Is