a firm adheres strictly to the residual dividend policy, the issuance of new common stock would suggest that
A) the dividend payout ratio is increasing.
B) no dividends were paid during the year.
C) the dividend payout ratio is decreasing.
D) the dollar amount of investments has decreased.
E) the dividend payout ratio has remained constant.

Question

Quizplus · Accepted Answer

Under a residual dividend policy, dividends are paid only after all acceptable investment opportunities have been funded. If new common stock is issued, it suggests that the firm did not have enough retained earnings to fund its investments, implying no dividends were paid.

A Firm Adheres Strictly to the Residual Dividend Policy, the Issuance