Your firm adheres strictly to the residual dividend model.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 firm's net income increases.
B) The company increases the percentage of equity in its target capital structure.
C) The number of profitable potential projects increases.
D) Congress lowers the tax rate on capital gains,leaving the rest of the tax code unchanged.
E) Earnings are unchanged,but the firm issues new shares of common stock.

Question

Quizplus · Accepted Answer

According to the residual dividend model, the dividend paid to shareholders is determined by subtracting the company's capital expenditures from its net income, and then paying out the remaining amount as dividends. Therefore, if the firm's net income increases, all else equal, it would have more money available to distribute as dividends, and the dividend per share would increase. None of the other options directly affect the amount of money available for dividends under the residual dividend model.

Your Firm Adheres Strictly to the Residual Dividend Model