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:

Cause-And-Effect Relationship

A principle describing a relationship in which one event (the cause) makes another event happen (the effect), with one being the result of the other.

Scientific Observation

Watching and recording participants’ behavior in a systematic and objective manner—in a natural setting, in a laboratory, or in searches of archival data.

Systematic

Characterized by having a methodical plan or procedure, especially in the context of scientific research or thorough investigation.

Objective Manner

A way of thinking or approaching situations impartially, without allowing personal feelings or prejudice to influence judgment.