A policy of a firm paying out only funds that are left over after all positive NPV projects are funded.

Question

Quizplus · Accepted Answer

The described policy is the residual dividend model, where a firm first invests in all available projects with positive net present value (NPV) and then distributes the remaining funds as dividends. The bird-in-the-hand theory argues that investors prefer dividends over retained earnings because of uncertainty about the future, the clientele effect policy suggests that a company should maintain a consistent dividend policy to attract and retain certain types of investors, and the dividend irrelevance theorem states that a company's dividend policy does not affect its value in a perfect market.

A Policy of a Firm Paying Out Only Funds That