What are the principal considerations of a board of directors in making decisions involving dividend declarations? Discuss briefly.

1. The correct foundation for dividend distribution is normally retained earningsunless they are legally bound in some way.

2. Additional paid-in capitalmay be utilized for dividends in some states, while preferred stock payments may be limited.

3. Any retained earnings deficits and debitsin paid-in capital accounts must be repaired before any dividends are paid.

4. In some areas, dividends may not be enough to bring retained earnings below the cost of treasury shares maintained.

1. The availability (liquidity)of assets for distribution

2. Creditor agreements

3. The impacts of a dividend on investor perceptions(e.g., maintaining a projected "payout ratio")

4. The dividend size is evaluated in relation to the possibility of paying dividends in future bad years. It's also worth considering whether or not existing facilities can be expanded or replaced.