Fill in the blank: A dividend is a distribution to shareholders out of ___ or ___ available for this purpose.

Profits or reserves

True or False: The payment of dividends is always beneficial for a company's stock price.

False. The payment of dividends may not always enhance a company's stock price, as per Modigliani and Miller's theory.

What are the different types of dividends a company can issue?

The different types of dividends include cash dividends, stock dividends, bond dividends, and property dividends.

What is the relationship between the cost of equity capital and the internal rate of return in Walter's model?

Cost of equity impacts dividend policy.

• High IRR signals profitable investments.

• Dividends should be distributed.

• Shareholders prefer higher returns.

Fill in the blank: A company may issue a ___ dividend when it has insufficient funds to pay cash dividends.

Bond

Explain the criticism of the MM approach regarding taxation.

MM approach overlooks taxation effects.

• Assumes no taxes exist.

• Ignores tax influence on returns.

• Affects investor behavior significantly.

True or False: According to Gordon's model, the firm can use both debt and equity financing to determine its dividend policy.

False. Gordon's model assumes that the firm is an all-equity firm with no external financing.

What factors might limit a firm's ability to pay dividends?

Several factors limit dividend payments.

• Cash needs for operations.

• Contractual obligations to creditors.

• Legal constraints and profitability.

Fill in the blank: The ___ policy is where a company does not pay any dividends due to unfavorable financial conditions.

No dividend