41. If a firm adheres strictly to the residual dividend model, the issuance of n

Question

41. If a firm adheres strictly to the residual dividend model, the issuance of new common stock would suggest that a. the dividend payout ratio has remained constant. b. the dividend payout ratio is increasing. c. no dividends will be paid during the year. d. the dividend payout ratio is decreasing e. the dollar amount of capital investments had decreased. 42. Which of the following actions will best enable a company to raise additional equity capital, other things held constant a. Refund long-term debt with lower cost short-term debt. b. Declare a stock split. c. Begin an open-market purchase dividend reinvestment plan d. Initiate a stock repurchase program. e. Begin a new-stock dividend reinvestment plan.

Explanation / Answer

Answer:41.c.no dividend will be paid during the year.

In residual dividend policy the management uses internal funds to cashflow capital expenditures on priority basis and dividends are paid if there are any surplus.

42.e.Begin a new - stock dividend reinvestment plan

Dividend reinvestment plan allows investors to reinvest their cash dividend by purchasung shares on dividend payment date.

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