The Residual Dividend Policy Implies That Investors Prefer to Have

question 23

Multiple Choice

The residual dividend policy implies that investors prefer to have the firm retain and reinvest earnings rather than pay them out in dividends if the rate of return the firm can earn on reinvested earnings:

• A) exceeds the cost of retained earnings that can be invested in projects with negative net present value.
• B) is less than the weighted average cost of capital (WACC) that is composed of both debt and equity.
• C) exceeds the cost of debt that will be taken from banks as loans or by issuing bonds to the public.
• D) exceeds the rate investors, on average, can earn themselves on other investments of similar risk.
• E) is less than the discount rate offered by the firm for dividend reinvestment.