... about the dividends are often mixed up with other financing and investment decisions. Some firms pay low dividends because management is optimistic about the firm's future and wishes to retain earnings for expansion. In this case the dividend is a by-product of the firm's capital budgeting decision. Another firm might finance capital expenditures largely by borrowing. This releases cash for dividends. In this case the dividend is a by-product of the borrowing decision O2. Once a company makes a profit, it must decide on what to do with those profits: either continues to retain the profits within the company, or pays them out to the owners of the firm in the form of dividends. Once the company decides to pay dividends, a somewhat permanent dividend policy may need to be established, which may in turn impact on investors and perceptions of the company in the financial markets. What kind of decision ...

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