The Residual Dividend Policy Implies That Investors Prefer to Have

question 10

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)is less than its cost of retained earnings.
• B)is less than its weighted average cost of capital (WACC).
• C)exceeds its cost of debt.
• D)exceeds the rate investors, on average, can earn themselves on other investments of comparable risk.
• E)is less than the discount rate offered by the firm on its dividend reinvestment plan (DRIP).

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