Suppose a Firm Adheres Strictly to the Residual Dividend Policy

question 25

Multiple Choice

Suppose a firm adheres strictly to the residual dividend policy and its optimal capital budget requires the use of all earnings for a given year (along with new debt according to the optimal debt/total assets ratio) .What should the firm pay?

• A)no dividends except out of past retained earnings
• B)no dividends to common stockholders
• C)dividends only out of funds raised by the sale of new common stock
• D)dividends only out of funds raised by selling off fixed assets

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Definitions:

Subliminal Perception

The process by which stimuli presented below the threshold of conscious awareness can influence thoughts, feelings, or actions, despite the individual being unaware of the stimuli.

Sensory Adaptation

The process by which sensory receptors become less sensitive to constant stimuli over time, allowing organisms to focus on changes in their environment.

Conscious Awareness

The state of being aware of one's own existence, sensations, thoughts, surroundings, etc.

Light Rays

Streams of photons traveling in a straight line, which are the basis of vision and are instrumental in phenomena such as reflection and refraction.