Question

A company is likely to declare higher dividends if _______.

• A. Tax rate has no effect on dividend declaration.
• B. Tax rates are relatively lower.
• C. None of the above.
• D. Tax rates are high.

Answer 1

The correct option is B

Tax rates are relatively lower.

Businesses can declare higher dividends when the tax rates are relatively lower since the money paid as taxes and rates will be of lesser burden to the company. The excess amount of funds available to the company can be distributed as dividends to its investors.