Trenton Publishing follows a strict residual dividend policy.All else being equal,which circumstance would be most likely to lead to an increase in the firm's dividend per share?
A)The firm's net income increases.
B)The company increases the percentage of equity in its target capital structure.
C)The number of profitable potential projects increases.
D)Earnings are unchanged, but the firm issues new shares of common stock.

Question

Quizplus · Accepted Answer

Trenton Publishing follows a strict residual dividend policy, which means that dividends are paid from residual earnings after all acceptable projects have been funded. Therefore, an increase in net income would lead to an increase in residual earnings, which in turn would result in higher dividends per share.

Option B could potentially impact the cost of equity and required rate of return but would not directly impact dividend per share.

Option C would impact the availability of residual earnings and could lead to more investment opportunities. However, if Trenton Publishing follows a strict residual dividend policy, any new projects would need to generate sufficient earnings to cover the dividend payout first.

Option D would not impact residual earnings or the dividend payout directly.

Trenton Publishing Follows a Strict Residual Dividend Policy