If a Firm Uses the Residual Dividend Model to Set

question 63

True/False

If a firm uses the residual dividend model to set dividend policy,then dividends are determined as a residual after providing for the equity required to fund the capital budget.Under this model,the higher the firm's debt ratio,the lower its payout ratio will be,other things held constant.

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Definitions:

Material Costs

The expenses incurred for materials that are directly used in the production of goods or services.

Specified Characteristics

Detailed attributes or features that are identified as requirements or standards for a particular object, process, or service.

Nominal

Relating to names or categories that are only labeled and do not have an inherent order or rank.

Ordinal

Relating to a classification where order or position is significant but not the magnitude of difference between items.