Trenton Publishing follows a strict residual dividend policy. 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. The remainder of the tax code is not changed. E) Earnings are unchanged, but the firm issues new shares of common stock.

Question

Quizplus · Accepted Answer

An increase in the firm's net income would lead to an increase in the residual amount available for dividends, thus increasing the dividend per share under a residual dividend policy.

Trenton Publishing Follows a Strict Residual Dividend Policy