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

question 82

Multiple Choice

According to the residual theory of dividends, if the firm's equity need is less than the amount ofretained earnings, the firm would

• A) pay no cash dividends.
• B) not need to consider its dividend policy.
• C) declare a dividend equal to the remaining balance.
• D) borrow to pay the cash dividend.

---

Definitions:

Interest Rate

The share of a loan subject to interest charges to the borrower, typically denoted as an annual percentage of the loan's outstanding sum.

Nominal Interest Rate

The stated interest rate on a loan or investment, not adjusted for inflation.

Rational Consumer

An assumption in economics that consumers aim to maximize their utility or satisfaction from consumption choices, given their budget constraints.

Cobb-Douglas Utility Function

A specific form of utility function used in economics to represent preferences, where utility is derived from a combination of goods, typically modeled with constants representing the elasticity of substitution between those goods.