According to the theory of dividend, the firm should follow its investment policy of accepting all…
According to the Residual Theory of Dividends, a firm treats dividend policy as a passive residual decision determined solely by its investment opportunities and target…
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According to the theory of dividend, the firm should follow its investment policy of accepting all positive NPV projects and paying out dividends if and only if, funds are available:
Answer and explanation
Correct answer D
According to the Residual Theory of Dividends, a firm treats dividend policy as a passive residual decision determined solely by its investment opportunities and target capital structure. Earnings are first used to finance the equity portion of all acceptable (positive NPV) capital budgeting projects, and dividends are paid out only if surplus funds remain.
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UGC NET Commerce