According to the Residual Theory of Dividends, If the Firm's

question 28

Multiple Choice

According to the residual theory of dividends, if the firm's equity need exceeds the amount of retained earnings, the firm would

• A) not need to consider its dividend policy.
• B) pay no cash dividends.
• C) borrow to pay the cash dividend.
• D) sell additional stock to pay the cash dividend.

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Definitions:

Business Loans

Credit facilities extended to businesses for various purposes, including capital expenditure, operational costs, and expansion activities, typically with repayment terms.

Disposable Income

The sum of money households can spend or save once income taxes have been deducted.

Saving

The process of setting aside a portion of current income for future use, typically to achieve long-term financial goals or provide a safety net.

Corporation's Capitalization

The total value of a corporation's issued shares of stock, debt, and other financial instruments, representing the company's funding structure.