If a Firm Adheres Strictly to the Residual Dividend Policy

question 7

Multiple Choice

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

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Definitions:

Market Savvy

Refers to possessing a good understanding and insight into how market trends, customer preferences, and competitor behaviors influence the marketplace.

Product Development

the process of bringing a new product or service to market, from initial idea through design, development, and introduction to consumers.

Collaborates

The act of working jointly with others or together especially in an intellectual endeavor.

Expatriate

An individual who lives outside their native country, often for work reasons, embracing a new cultural environment while maintaining their original nationality.