Author Question: Explain why some small start-up companies choose not to pay dividends even though they make very ... (Read 222 times)

lidoalex · **on:** Jun 29, 2018

Explain why some small start-up companies choose not to pay dividends even though they make very large profits. Why might investors still be happy with this arrangement?

What will be an ideal response?

Question 2

If a country sets a pegged exchange rate that is above the equilibrium exchange rate, how can the country maintain the peg?

A) by purchasing surplus domestic currency at the pegged rate
B) by purchasing surplus domestic currency at the equilibrium exchange rate
C) by selling surplus domestic currency at the pegged rate
D) by increasing the pegged exchange rate

bookworm410 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Small start-up companies may choose to take the profit and use it to reinvest in the company rather than pay it out as dividends. This can be a cheaper way of borrowing financial capital versus borrowing from banks. Investors are likely to be happy with this arrangement is they believe that the company can make a higher rate of return on the profit than the investors could on their own in an alternative use.

Answer to Question 2

A