(Practical considerations in setting dividend policy)

The board of directors of Kensington Enterprises has decided to pay cash dividends totaling $5 million in the first quarter of the year. This payment represents the initiation of a cash dividend for the first time in company history, and your company CFO has asked you to look into any restrictions or constraints the firm might have in carrying out the plan.

Which of the following statements regarding the types of restrictions on dividend policy Kensington might face is false?(Select the best choice below.)

A.

The firm should consider whether paying a dividend will lead to the need to raise equity capital in the future, which could dilute control of the firm by its current owners.

B.

The firm's liquidity position has a direct bearing on its ability to pay dividends.

C.

Certain legal restrictions can limit the amount of dividends a firm may pay.