A Firm Adheres Strictly to the Residual Dividend Policy, Then

question 5

Multiple Choice

a firm adheres strictly to the residual dividend policy, then if its optimal capital budget requires the use of all earnings for a given year (along with new debt according to the optimal debt/total assets ratio) , then the firm should pay

• A)no dividends except out of past retained earnings.
• B)no dividends to common stockholders.
• C)dividends only out of funds raised by the sale of new common stock.
• D)dividends only out of funds raised by borrowing money (i.e., issue debt).
• E)dividends only out of funds raised by selling off fixed assets.

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Definitions:

Product Life Cycle

The progression of a product through several stages from introduction to growth, maturity, and decline, affecting marketing and sales strategies.

Expenditures

The act of spending funds or money on goods, services, or activities, either for immediate needs or for future benefits.