The decision of how much money to pay out in dividends is made by the
Select one:
a. chief executive officer.
b. chief financial officer.
c. company shareholders.
d. board of directors.
The correct answer and explanation is:
The correct answer is d. board of directors.
Explanation:
The decision regarding how much money to pay out in dividends is primarily made by the board of directors of a company. While other individuals such as the CEO and CFO may play a role in advising or recommending the amount, the ultimate decision lies with the board. This is because the board has the responsibility to act in the best interest of the shareholders and ensure the long-term financial stability and health of the company.
The process begins with the chief financial officer (CFO), who evaluates the company’s financial health, including cash flow, profitability, and future investment needs. Based on this analysis, the CFO may propose a dividend amount. The CEO may also provide input, especially in terms of the company’s strategic direction and priorities.
Once the financial information is reviewed, the board of directors evaluates the proposal in light of the company’s goals. This includes considering the company’s current earnings, expected future earnings, and any necessary reinvestment in operations, research, or growth opportunities. The board also looks at the company’s cash reserves and whether paying a dividend will affect its ability to meet other financial obligations or invest in expansion.
After reviewing the proposal, the board votes on the dividend declaration. If approved, the company will set a record date (the date by which shareholders must be on the company’s books to receive the dividend) and a payment date. Shareholders, as owners of the company, do not directly decide the dividend payout. However, they may vote on matters related to dividend policies during annual general meetings, but the power to declare dividends remains with the board.
In summary, while management plays a role in advising, the board of directors holds the final say in the decision to pay dividends.