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      Question

      High dividend payout is preferred

      when:
      A Company has scarce investment opportunities Correct Answer Incorrect Answer
      B Company has high growth potential Correct Answer Incorrect Answer
      C Debt levels are high Correct Answer Incorrect Answer
      D Tax rate is zero Correct Answer Incorrect Answer

      Solution

      According to Gordon/Walter models: • If a company has low or no profitable projects, retaining profits doesn’t improve value. • Better to distribute earnings as dividends. So, Low growth potential → high dividend payout policy

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