If a firm adheres strictly to the residual dividend model,a sale of new common stock by the company would suggest that
A) The dividend payout ratio has remained constant.
B) The dividend payout ratio is increasing.
C) No dividends were paid for the year.
D) The dividend payout ratio is decreasing.
E) The dollar amount of investments has decreased.

Question

Quizplus · Accepted Answer

Under the residual dividend model, dividends are paid only after all acceptable investment opportunities are funded. If new common stock is issued, it suggests that internal funds were insufficient, implying no dividends were paid.

If a Firm Adheres Strictly to the Residual Dividend Model,a