Which of the following statements would be consistent with the residual dividend
ID: 2663653 • Letter: W
Question
Which of the following statements would be consistent with the residual dividendtheory?
- 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.