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Identify the factors which affect the dividend decision.

A. Stock market Reaction

B. Floatation Cost

C. Legal Constraints

D. Fixed operating cost

E. Cost of equity

Solution

Correct Option: 1

Factors affecting dividend decision include amount of earnings, stability of earnings/dividends, growth opportunities, cash flow position, shareholders' preference, taxation policy, stock market reaction, access to capital market, legal constraints, and contractual constraints. From the given options, Stock market Reaction (A) and Legal Constraints (C) are factors affecting the dividend decision. Floatation cost and cost of equity relate to the financing decision, while fixed operating cost relates to capital structure.

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