The residual theory of dividends suggests that the dividend paid by a firm should be viewed as a residual, the amount left over after all acceptable investment opportunities have been undertaken.

Question

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The residual theory of dividends suggests that a firm should only pay dividends after all acceptable investment opportunities have been undertaken and any remaining funds can be distributed as dividends. Therefore, the dividend paid is viewed as a residual.

The Residual Theory of Dividends Suggests That the Dividend Paid