Your firm follows a strict residual dividend policy. All else equal, which of th

Question

Your firm follows a strict residual dividend policy. All else equal, which of the following factors would be most likely to lead to an increase in your firm's dividend per share?

a. The company reduces the percentage of equity in its target capital structure.

b. The number of profitable potential projects increases.

c. Congress lowers the tax rate on capital gains.

d. Earnings are unchanged, but the firm issues new shares of common stock.

e. The firm's net income decreases.

a. The company reduces the percentage of equity in its target capital structure.

b. The number of profitable potential projects increases.

c. Congress lowers the tax rate on capital gains.

d. Earnings are unchanged, but the firm issues new shares of common stock.

e. The firm's net income decreases.

Explanation / Answer

d AND e ARE WRONF AS THESE WILL DECREASE dividends

B is wrong as income rise is otential and not actual

A. As percentage of equity decreses this mean debt increase or equity decreases. assuming everthing remainingsame this is correct answer

B. No capital gain benefit for company

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