Your Firm Adheres Strictly to the Residual Dividend Model

question 3

Multiple Choice

Your firm adheres strictly to the residual dividend model.All else equal,which of the following factors would be most likely to lead to an increase in the firm's dividend per share?

• A) The firm's net income increases.
• B) The company increases the percentage of equity in its target capital structure.
• C) The number of profitable potential projects increases.
• D) Congress lowers the tax rate on capital gains,leaving the rest of the tax code unchanged.
• E) Earnings are unchanged,but the firm issues new shares of common stock.

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Definitions:

GDP Deflator

A measure of the level of prices of all new, domestically produced, final goods and services in an economy.

Bureau of Labor Statistics

A federal agency in the United States dedicated to gathering and examining data on job market trends, conditions of employment, and variations in pricing.

Consumer's Budget

The total amount of income or resources available for an individual or household to allocate across various goods and services.

Indexed for Inflation

Adjusted for changes in the purchasing power of money, ensuring values remain consistent over time.