Positive NPV Projects Enhance Shareholder Wealth

question 11

Essay

Positive NPV projects enhance shareholder wealth. However, in some cases the payment of dividends limits the number of positive NPV projects a firm can take. Why, then, shouldn't shareholders prefer a residual dividend policy?

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Definitions:

Treasury Stock

Shares that were issued and subsequently reacquired by the company, reducing the amount of outstanding stock on the open market.

Investing Activities

Financial activities related to the purchase and sale of long-term assets and investments, not including cash reserves.

Investing Activities

Part of the cash flow statement that shows the cash spent or received from investment activities, including purchases and sales of physical assets or investments in securities.

Financing Activities

Transactions related to raising funds or repaying borrowed funds, as reported in the statement of cash flows.