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As we know corporate structure in any publicly traded firm is important aspect for firm’s financial...

As we know corporate structure in any publicly traded firm is important aspect for firm’s financial growth. Therefore, what should firm do with the extra earning per share?

Multiple Choice

  • should pay it out to shareholders unless the firm can earn a higher rate of return on the cash than the shareholders can earn by investing in the capital market.

  • should always reinvest it in new equipment.

  • should pay it out to management unless the firm can earn a higher rate of return on the cash than the management can earn by investing in the capital market.

  • should invest it in the safest projects available.

  • Should always invest it in U.S. equities.

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Answer #1

If The company is making a profit then the company should be trying to distribute the profit as dividend or reinvest that money into the business itself. The company will be redistributing it as dividend if company does not have a capacity to earn higher rate of return and shareholder have a capacity of earning a higher rate of return.

All the other options except option (A) are false.

Correct answer will be option (A) Should pay it out to shareholder unless the firm can earn a higher rate of return on the cash that the shareholder can earn by investing in the capital market.

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