Reynolds Paper Products Corporation Follows a Strict Residual Dividend Policy

question 1

Multiple Choice

Reynolds Paper Products Corporation follows a strict residual dividend policy.All else equal, which of the following factors would be most likely to lead to an increase in the firm's dividend per share?

• A) The company increases the percentage of equity in its target capital structure.
• B) The number of profitable potential projects increases.
• C) Congress lowers the tax rate on capital gains.The remainder of the tax code is not changed.
• D) Earnings are unchanged, but the firm issues new shares of common stock.
• E) The firm's net income increases.

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Definitions:

Budget Constraint

The limitations on the purchase of goods and services imposed by a budget, representing the combination of goods and services that a consumer can afford with a fixed income.

Giffen Good

A type of good for which demand increases as its price increases, contradicting the basic laws of demand in economics due to the impact of strong income effects.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good consumers are willing and able to purchase at various prices.

Labor Supply Curve

A graphical representation showing the relationship between the wages offered and the quantity of labor workers are willing to supply.