According to the residual theory of dividends:
A)Paying dividends would affect the value of the firm
B)Dividends would be as volatile as earnings
C)Dividends should be very smooth
D)Mature companies would pay higher dividends

Question

Quizplus · Accepted Answer

According to the residual theory of dividends, a firm should first invest in all positive net present value (NPV) projects in order to achieve its target capital structure. The remaining funds, or the residual, can then be distributed as dividends. Mature companies tend to have fewer positive NPV projects and therefore have more funds available for dividend payments, leading to higher dividends.

According to the Residual Theory of Dividends