Reynolds Paper Products Corporation follows a strict residual dividend policy. All else equal, which of the following factors would be most likely to lead to an increase in the firm's dividend per share?

Question

Quizplus · Accepted Answer

Reynolds Paper Products Corporation follows a strict residual dividend policy, which means that dividend payments are based on the company's net income. Therefore, if the firm's net income increases, it is most likely to lead to an increase in the dividend per share. The other options, such as increasing the percentage of equity in the target capital structure, the number of profitable potential projects, or lowering the tax rate on capital gains may have an impact on the firm's dividend policy, but they may not directly lead to an increase in the dividend per share. Similarly, issuing new shares of common stock will dilute existing shareholders' equity and may lead to a decrease in the dividend per share.

Reynolds Paper Products Corporation Follows a Strict Residual Dividend Policy