Each year, shareholders receive a dividend equal to the firm's net earnings divided by the number of shares of common stock. A. TRUE B. FALSE
Question
Each year, shareholders receive a dividend equal to the firm's net earnings divided by the number of shares of common stock.
A. TRUE
B. FALSE
Solution
The statement is B. FALSE.
Explanation:
Dividends are payments made by a corporation to its shareholders and are often derived from the company's net earnings. However, the amount paid out as dividends may not necessarily equal the net earnings per share. Companies can choose to retain a portion of their earnings for reinvestment or other financial strategies. This means that even if a firm has substantial net earnings, it might decide to distribute only a portion of those earnings as dividends. Additionally, dividends can fluctuate based on board decisions, economic conditions, or strategic goals of the company. Therefore, it is incorrect to say that shareholders receive a dividend equal to the firm's net earnings divided by the number of shares; that would imply all earnings are distributed, which is not standard practice.
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