If Yellow Duck Distribution increases its debt ratio, then its dividend payout ratio will constant. Most firms have earnings that vary considerably from year to year and do not grow at a reliably constant pace. Furthermore, their required investment may change often. Does this mean that the residual distribution policy approach can't be of any help to most firms? Yes No assuming that all other factors are held If you were to graph a firm's earnings, cash flows, and dividends over the past 20 years, which would you expect to be the most stable over time? Cash flow Dividends Earnings
If Yellow Duck Distribution increases its debt ratio, then its dividend payout ratio will constant. Most firms have earnings that vary considerably from year to year and do not grow at a reliably constant pace. Furthermore, their required investment may change often. Does this mean that the residual distribution policy approach can't be of any help to most firms? Yes No assuming that all other factors are held If you were to graph a firm's earnings, cash flows, and dividends over the past 20 years, which would you expect to be the most stable over time? Cash flow Dividends Earnings
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
![The residual distribution policy approach to dividend policy is based on the theory that a firm's optimal dividend distribution policy is a function of the
firm's target capital structure, the investment opportunities available to the firm, and the availability and cost of external capital. The firm makes
distributions based on the residual earnings.
Consider the case of Yellow Duck Distribution Company:
60%
Debt
Yellow Duck Distribution Company is expected to generate $240,000,000 in net income over the next year. Yellow Duck Distribution's
stockholders expect it to maintain its long-run dividend payout ratio of 25% of earnings.
40%
Equity
If the firm wants to maintain its current capital structure of 60% debt and 40% equity, the maximum capital budget it can support with this year's
expected net income is
If Yellow Duck Distribution increases its debt ratio, then its dividend payout ratio will
constant.
Yes
Most firms have earnings that vary considerably from year to year and do not grow at a reliably constant pace. Furthermore, their required investment
may change often. Does this mean that the residual distribution policy approach can't be of any help to most firms?
O No
, assuming that all other factors are held
If you were to graph a firm's earnings, cash flows, and dividends over the past 20 years, which would you expect to be the most stable over time?
Cash flow
Dividends
O Earnings](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff6875d1f-7585-44e5-8edc-ec261e6aff7a%2F2fc1c6f5-d334-4fb9-bb64-cadaa3242009%2Fhzygwo7_processed.png&w=3840&q=75)
Transcribed Image Text:The residual distribution policy approach to dividend policy is based on the theory that a firm's optimal dividend distribution policy is a function of the
firm's target capital structure, the investment opportunities available to the firm, and the availability and cost of external capital. The firm makes
distributions based on the residual earnings.
Consider the case of Yellow Duck Distribution Company:
60%
Debt
Yellow Duck Distribution Company is expected to generate $240,000,000 in net income over the next year. Yellow Duck Distribution's
stockholders expect it to maintain its long-run dividend payout ratio of 25% of earnings.
40%
Equity
If the firm wants to maintain its current capital structure of 60% debt and 40% equity, the maximum capital budget it can support with this year's
expected net income is
If Yellow Duck Distribution increases its debt ratio, then its dividend payout ratio will
constant.
Yes
Most firms have earnings that vary considerably from year to year and do not grow at a reliably constant pace. Furthermore, their required investment
may change often. Does this mean that the residual distribution policy approach can't be of any help to most firms?
O No
, assuming that all other factors are held
If you were to graph a firm's earnings, cash flows, and dividends over the past 20 years, which would you expect to be the most stable over time?
Cash flow
Dividends
O Earnings
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