The residual theory of dividends suggests that ________.
A) different payout policies attract different types of investors but still do not change the value of a firm
B) dividends are irrelevant in determining the value of a firm
C) as long as a firm's equity need exceeds the amount of retained earnings, no cash dividend is paid
D) the payout policies of different firms have no impact on the taxes that investors have to pay

Question

Quizplus · Accepted Answer

The residual theory of dividends posits that dividends should only be paid after all project investment needs are met and excess earnings remain. If a firm's need for equity exceeds its retained earnings, it implies that all available internal funds are being reinvested into the business, leaving no surplus for dividend payouts.

The Residual Theory of Dividends Suggests That ________