If a firm adheres strictly to the residual dividend policy,what would the issuance of new common stock suggest?
A)The dividend payout ratio has remained constant.
B)The dividend payout ratio is increasing.
C)No dividends were paid during the year.
D)The dividend payout ratio is decreasing.

Question

Quizplus · Accepted Answer

With a strict adherence to the residual dividend policy, new common stock issuance would suggest that the firm did not generate enough funds for its planned capital expenditures and dividend payments. As a result, it would have to issue new common stock to raise the necessary funds, indicating that no dividends were paid during the year.

If a Firm Adheres Strictly to the Residual Dividend Policy,what