Positive NPV Projects Enhance Shareholder Wealth

question 250

Essay

Positive NPV projects enhance shareholder wealth. However, in some cases the payment of
dividends limits the number of positive NPV projects a firm can take. Why, then, shouldn't
shareholders prefer a residual dividend policy?

---

Definitions:

Induce

To cause or bring about a certain action or condition, often through incentives or persuasion.

Unethical Behaviour

Actions or decisions that violate moral or professional principles, often resulting in harm or unfairness.

Defensiveness

The quality of being very anxious to challenge or avoid criticism; the act of defending oneself against perceived threat or critique.

Bounded Ethicality

The psychological process by which people come to engage in behaviour that violates their own ethical standards.