Which of the Following Statements Would Be Consistent with the Residual

question 151

Multiple Choice

Which of the following statements would be consistent with the residual dividend theory?

• A) Wealthy investors prefer corporations to defer dividend payments because capital gains produce greater after-tax income.
• B) Dividends are more certain than capital gains.
• C) Dividends should only be paid if a firm has profits in excess of the amount needed to finance the current year's capital investments.
• D) Investors are indifferent whether stock returns come from dividend income or capital gains income.

---

Definitions:

Option To Wait

The flexibility to delay an investment or project to gather more information or wait for favorable conditions.

Discount Rate

The discount rate applied in DCF analysis to calculate the current worth of anticipated future cash flows.

Option To Wait

A strategic decision opportunity in investment where the investor can delay an investment decision to gather more information or for conditions to improve.

Soft Capital Rationing

Internal constraints imposed by a company's management on the funds allocated for new investments, often due to budgetary constraints.