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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