Which of the following best describes the dividend decision in terms of benefits for the stockholder?

A) Paying dividends creates a short-term benefit, while retaining earnings has the potential to be a long-term benefit.
B) Paying dividends creates a long-term benefit, while retaining earnings has the potential to be a short-term benefit.
C) Paying dividends and retaining earnings both create short-term benefits.
D) Paying dividends and retaining earnings both create long-term benefits.
E) The decision to pay dividends or retain earnings has little impact on the stockholder.

Question

Destiny Vazquez · Accepted Answer

Final Answer : A, Explanation :  Paying dividends provides a short-term benefit as it gives the stockholder cash in hand. However, retaining earnings has the potential to increase the value of the company in the long-term, which can benefit the stockholder through capital gains or higher dividends in the future. So, paying dividends creates a short-term benefit, while retaining earnings has the potential to be a long-term benefit.

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