Which of the Following Statements About the Residual Dividend Theory

question 116

Multiple Choice

Which of the following statements about the residual dividend theory is FALSE?

• A)The firm will maintain its optimum debt ratio in financing future investments.
• B)Dividend policy by itself has no direct influence on the market price of the firm's common stock.
• C)The firm will issue new common stock to finance investment opportunities in order to ensure that some dividend will be paid.
• D)The firm's investment opportunities,capital structure,and profitability all influence the firm's dividend policy.

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Definitions:

Uncertain Future

Describes the unpredictability or the lack of clarity regarding events or outcomes that will occur in time ahead.

Basis of Value

The principle or standard by which the value of an asset is determined.

Stocks

Financial instruments representing ownership shares in a corporation, giving holders a claim on the corporation's earnings and assets.

Dividends

A portion of a company's earnings distributed to its shareholders, representing a share of the corporate profits.