The correct answers are:

• The company is a growth company and investors buying shares in the company recognise that all profits will be reinvested for growth.

• Shareholders needing cash can sell shares in the stock market at any time, and so do not need dividends.

• The tax treatment of capital gains is more favourable than the tax treatment of dividends.

If a company announces that its long-term policy is to pay no dividends, the only investors in the shares should be investors seeking capital growth through reinvestment. Companies have argued that shareholders needing cash can sell their shares in the market at any time, and so do not need dividends. The argument is also made that capital gains are not taxed until the shares are sold, which means that capital gains tax will be deferred, whereas tax on dividends would be an annual event. The tax treatment of capital gains is therefore favourable for investors seeking capital growth.