Which One of the Following Statements Is Correct About a Firm

question 92

Multiple Choice

Which one of the following statements is correct about a firm that adheres to a strict residual dividend policy? Assume that the amount of earnings each year exceeds the amount of capital spending.

• A) The dividend yield on the stock will be constant over time.
• B) The dividend payout ratio will be constant.
• C) The debt-equity ratio will increase each year by a percentage equal to [1/(1 + D/E)].
• D) The balance in the common stock account will increase each year by the amount of the capital spending multiplied by [1/(1 + D/E)].
• E) The retained earnings will increase each year by the amount of the capital spending multiplied by [1/(1 + D/E)].

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