The Residual Theory of Dividends Suggests That ________

question 118

Multiple Choice

The residual theory of dividends suggests that ________.

• A) different payout policies attract different types of investors but still do not change the value of a firm
• B) dividends are irrelevant in determining the value of a firm
• C) as long as a firm's equity need exceeds the amount of retained earnings, no cash dividend is paid
• D) the payout policies of different firms have no impact on the taxes that investors have to pay

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Definitions:

Equilibrium Price

The price at which the quantity of a good or service demanded equals the quantity supplied, leading to market equilibrium.

Equilibrium Quantity

The quantity of goods or services supplied is equal to the quantity demanded at the market price.

Consumer Surplus

The difference between the highest price a consumer is willing to pay for a good or service and the actual market price they pay.

Positively Sloped

Describes a line on a graph that moves upward as one moves from left to right, indicating a direct relationship between two variables.