Final answer:
Dividend policy in corporate finance addresses whether a firm should pay out a cash dividend or a stock dividend. This decision is based on factors like cash flow, taxation, and shareholder preferences. The correct answer is c) a cash dividend or a stock dividend.
Step-by-step explanation:
The dividend policy question addresses whether the firm should payout:
- a cash dividend or a stock dividend.
Dividend policy is a crucial part of a company's financial management practices, ensconced in corporate finance. It revolves around the decision-making process that a firm undergoes when determining the size and form of distributions to its shareholders.
When a company earns a profit, it can either reinvest the profit back into the business (called retained earnings) or it can distribute the profit to its shareholders in the form of dividends. There are several forms of dividends - the most common being cash dividends, where companies pay shareholders a specific amount per share.
Alternatively, a company may issue stock dividends, where additional shares are distributed proportionally to existing shareholders. The choice between these types of dividends can depend on a variety of factors, including the company's cash flow situation, tax implications, shareholder preferences, and broader financial strategy.