The Wagner Company Tries to Follow a Pure "Residual" Dividend

question 16

Multiple Choice

The Wagner Company tries to follow a pure "residual" dividend policy.Earnings and dividends last year were $100 million and $20 million respectively.Anticipated earnings for this year are $80 million.The company is financed completely with common equity.The required rate of return on retained earnings is 15 percent while the cost of new equity is 16 percent.If Wagner has $90 million of investment projects having expected returns greater than 16 percent, determine Wagner's dividend and investment policies.

• A)Pay out $20 million in dividends and raise $30 million externally
• B)Pay no dividends and invest only in the first $80 million in projects.
• C)Pay out $10 million in dividends and raise $20 million externally
• D)Pay no dividends and raise $10 million externally

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Definitions:

Members Reactions

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Personal Space

The physical space immediately surrounding someone, into which encroachment can feel uncomfortable or threatening.

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The physical or virtual spaces where group interactions occur, facilitating communication and collaboration.

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The behavior by individuals or groups to claim and defend a specific area or territory as their own, often against others.