Which of the following would cause dividends to increase if the firm was using the residual dividend model?

Question

Quizplus · Accepted Answer

The residual dividend model calculates dividends based on earnings left over after all positive NPV projects are funded. If a firm has fewer positive NPV projects (A), it would have more leftover funds to pay as dividends. Using more debt (B) can also increase dividends by reducing the equity needed and thus increasing the residual funds available for dividends. An increase in net income (C) directly increases the funds available for dividends after investment needs are met. Therefore, all these options would lead to an increase in dividends under the residual dividend model.

Which of the Following Would Cause Dividends to Increase If