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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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