Chapter 2, Problem 20QP

Summary Introduction

To critically think about: The dividend paying capacity of the firm if the net income is negative and the long-term debt account of the firm if the net capital spending, net working capital, and the new stock issued is zero.

Introduction:

Dividend refers to the payment made by the company to the stockholders’ of the firm. It is the interest earned by the stockholders’ on their capital. The dividend is not a compulsory payment and is paid at the discretion of the company.

Long-term debt refers to the dollars borrowed by the company to obtain financial leverage.