The Wagner Company Tries to Follow a Pure "Residual" Dividend

question 15

Multiple Choice

The Wagner Company tries to follow a pure "residual" dividend policy. Earnings and dividends last year were $100 million and $20 million, respectively. Anticipated earnings for this year are $80 million. The company is financed completely with common equity. The required rate of return on retained earnings is 15% and the cost of new equity is 16%. Assuming Wagner has $70 million of investment projects having expected returns greater than 15%, determine the total amount of dividends Wagner should pay.

• A) None
• B) $10 million
• C) $20 million in dividends and raise needed investment funds externally
• D) $80 million in dividends and raise needed investment funds externally

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Definitions:

Language Development

The process by which individuals acquire the ability to perceive, produce, and use words to understand and communicate. This process involves both the acquisition of spoken and written language.

Positive Reinforcement

A method in behavioral psychology where a desirable stimulus is added to encourage the repetition of a particular behavior.

Brain Size

The physical measurement or volume of the brain, often considered in relation to body size or intelligence.

Intelligence

The capacity for learning, reasoning, understanding, and similar forms of mental activities; aptitude in grasping truths, relationships, facts, meanings, etc.