The _____________ policy states that dividends will vary based upon how much excess funds the firm has from year-to-year, whereas under a ________________ policy the firm pays a constant percentage of earnings as dividends, so as earnings rise and fall so does the dollar amount of dividends.

Question

Quizplus · Accepted Answer

The first blank describes the residual dividend policy, which allows dividends to vary based on the amount of excess funds. The second blank describes the constant payout ratio policy, which pays a consistent percentage of earnings as dividends, resulting in fluctuating dollar amounts. Therefore, the correct answer is B, residual dividend and constant payout ratio.

The _____________ Policy States That Dividends Will Vary Based Upon