If a Firm Adheres Strictly to the Residual Dividend Policy

question 8

Multiple Choice

If a firm adheres strictly to the residual dividend policy, the issuance of new common stock would suggest that

• A) the dividend payout ratio is increasing.
• B) no dividends were paid during the year.
• C) the dividend payout ratio is decreasing.
• D) the dollar amount of investments has decreased.
• E) the dividend payout ratio has remained constant.

---

Definitions:

Rent Controls

Government-imposed limits on the amount landlords can charge for leasing properties, aimed at making housing more affordable.

Inefficiently Low Quality

A form of inefficiency in which sellers offer low-quality goods at a low price even though buyers would prefer a higher quality at a higher price; often a result of a price ceiling.

Allocation

The process of distributing resources or goods among different uses, users, or parties in a way that optimally meets criteria or objectives.

Mandated Price

A price set by government regulation or law, rather than determined by market forces of supply and demand.