The residual theory of dividend policy asserts that
A) sufficient dividends are paid to maintain a stable total dividend payment-any residual is invested internally by the firm.
B) sufficient dividends are paid to maintain a stable dividend payout ratio-any residual is invested internally by the firm.
C) dividends are paid out of the residual remaining after internal investments are made by the firm.
D) dividend payments are adjusted to maintain dividends at a constant percentage of total cash flows.

Question

Quizplus · Accepted Answer

The residual theory of dividend policy asserts that dividends are paid from the residual earnings remaining after a company makes all the desired investments in projects with positive net present values. Therefore, any residual or leftover earnings after those investments are made are distributed to shareholders as dividends.

The Residual Theory of Dividend Policy Asserts That