Future investment plans are important determinants of payout policy because of the costs of raising new capital.

Question

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If a company plans to invest in future projects, they will need to raise new capital to fund those projects. This can be costly, as they may need to issue new shares or take on debt. Therefore, the company may choose to pay out less in dividends to shareholders in order to retain more earnings for future investment.

Future Investment Plans Are Important Determinants of Payout Policy Because