Which of the following statements would be consistent with the residual dividend

Question

Which of the following statements would be consistent with the residual dividend
theory?

- Wealthy investors prefer corporations to defer dividend payments because capital gains produce greater after-tax income.

- Dividends are more certain than capital gains.

- Dividends should only be paid if a firm has profits in excess of the amount needed to
finance the current year's capital investments.

- Investors are indifferent whether stock returns come from dividend income or capital gains income.

- None of the above.

Explanation / Answer

Dividends should only be paid if a firm has profits in excess of the amount needed to finance the current year's capital investments.

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