A passive residual dividend policy suggests that the firm will ____.
A) pay the same dollar amount of dividends every year
B) pay the same percentage of earnings in dividends every year
C) pay a dividend only after all viable investment projects have been exhausted
D) omit a dividend in the next period

Question

Quizplus · Accepted Answer

A passive residual dividend policy suggests that a firm will only pay a dividend after all viable investment projects have been exhausted. This means that the firm will prioritize investing its earnings back into the business rather than paying dividends. Only after all profitable investment opportunities have been taken will the firm distribute any remaining earnings as dividends. Thus, the firm's dividend payout is residual, or based on what is leftover after all investment needs have been met.

A Passive Residual Dividend Policy Suggests That the Firm Will