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Asked by Chintan Kothari on May 05, 2024

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All else the same, an investor is likely to prefer a firm with a high dividend payout if the firm's dividend payout is restricted by a bond indenture.

High Dividend Payout

This term refers to companies that return a large portion of their earnings to shareholders in the form of dividends.

Bond Indenture

A legal contract specifying the terms and conditions under which a bond has been issued, including the interest rate and maturity date.

Restricted

Pertains to assets or securities that are not fully transferable until certain conditions have been met, often used in reference to stocks.

  • Determine the factors that guide investor predilections regarding dividend policies.
  • Recognize the restrictions imposed by bond indentures on dividend policies.
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JA
Junior AndaluzMay 12, 2024
Final Answer :
False
Explanation :
An investor might actually prefer a lower dividend payout if it means the firm is reinvesting earnings into potentially profitable projects, especially if the dividend payout is restricted to ensure financial stability and compliance with bond covenants.

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