A Firm Adheres Strictly to the Residual Dividend Policy, Then

question 34

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

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Definitions:

Promissory Estoppel

A legal principle that prevents a party from withdrawing a promise made to another party, if the latter has relied on that promise to their detriment.

Parol Evidence Rule

A legal rule that excludes the admission of oral statements, written agreements outside the contract, or preliminary agreements in interpreting a written contract.

Parol Evidence Rule

The parol evidence rule is a legal principle that prevents parties in a written contract from presenting external evidence that contradicts or adds to the written terms of the contract.

Statute Of Frauds

A legal concept that requires certain types of contracts to be written and signed in order to be legally enforceable.