14. Boston Free Press has a dividend policy whereby the firm pays a constant ann

Question

14. Boston Free Press has a dividend policy whereby the firm pays a constant annual dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company: A. must always show a current liability of $2,400, ($2.40 1,000), for dividends payable. B. must still declare each dividend before it becomes an actual company liability. C. is obligated to pay $2.40 per share each year in perpetuity. D. will be declared in default if it does not pay at least $2.40 per share per year on a timely basis. E. has a liability that must be paid at a later date should the company miss paying an annual dividend payment.

Explanation / Answer

Boston Free Press has a dividend policy whereby the firm pays a constant annual dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:

"Must still declare each dividend before it becomes an actual company liability."

Hence, the correct option is (B).

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