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Residual dividend policy

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If a firm adheres strictly to the residual dividend policy, a sale of new common stock by the firm would suggest that

a. the dividend payout ratio has remained constant.

b. the dividend payout ratio is increasing.

c. no dividends were paid for the year.

d. the dividend payout ratio is decreasing.

e. the dollar amount of dividends has decreased.

Discuss fully the reasons for your choice, then discuss briefly why the other choices are not correct.

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Answers a multiple choice question on residual dividend policy

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The correct answer is
c. no dividends were paid for the year.

Under the residual dividend policy the process is calculate the retained earnings that is required for capital budget purposes (investments) and what is leftover (retained earnings ...

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