Question

If a firm adopts a residual distribution policy, distributions are determined as a residual item. Therefore,...

If a firm adopts a residual distribution policy, distributions are determined as a residual item. Therefore, the better the firm's investment opportunities, the lower its distributions should be.

True False

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

True.

In a residual Distribution Policy, Residual of Earnings are distributed i.e. after considering the Funding requirement for Investment Opportunities, the rest is distributed. So better is the Investment Opportunities of any firm, lower will be the distribution.

NOTE: The answer to your question has been given below/above. If there is any query regarding the answer, please ask in the comment section. If you find the answer helpful, do upvote. Help us help you.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Relevant cash flows ate the specific set of cash flows that a firm can expect if...
Relevant cash flows ate the specific set of cash flows that a firm can expect if it implements the project. If the firm doesn’t implement the project, the cash flows won’t exist. So it is the additional cash flows that the company can expect from the project. True or False If a firm adopts a residual distribution policy, distributions are determined as a residual item. Therefore, the better the firm's investment opportunities, the higher its distributions should be. True False...
The residual theory of dividends connects a firm's dividend policy and its level of capital investments....
The residual theory of dividends connects a firm's dividend policy and its level of capital investments. True or False
Residual Distribution Policy Harris Company must set its investment and dividend policies for the coming year....
Residual Distribution Policy Harris Company must set its investment and dividend policies for the coming year. It has three independent projects from which to choose, each of which requires a $6 million investment. These projects have different levels of risk, and therefore different costs of capital. Their projected IRRs and costs of capital are as follows: Project A: Cost of capital = 17%; IRR = 16% Project B: Cost of capital = 12%; IRR = 10% Project C: Cost of...
Residual Distribution Policy Harris Company must set its investment and dividend policies for the coming year....
Residual Distribution Policy Harris Company must set its investment and dividend policies for the coming year. It has three independent projects from which to choose, each of which requires a $4 million investment. These projects have different levels of risk, and therefore different costs of capital. Their projected IRRs and costs of capital are as follows: Project A: Cost of capital = 15%; IRR = 16% Project B: Cost of capital = 13%; IRR = 11% Project C: Cost of...
Residual Distribution Policy Harris Company must set its investment and dividend policies for the coming year....
Residual Distribution Policy Harris Company must set its investment and dividend policies for the coming year. It has three independent projects from which to choose, each of which requires a $3 million investment. These projects have different levels of risk, and therefore different costs of capital. Their projected IRRs and costs of capital are as follows: Project A: Cost of capital = 18%; IRR = 21% Project B: Cost of capital = 14%; IRR = 16% Project C: Cost of...
Problem 14-09 Residual Distribution Policy Harris Company must set its investment and dividend policies for the...
Problem 14-09 Residual Distribution Policy Harris Company must set its investment and dividend policies for the coming year. It has three independent projects from which to choose, each of which requires a $5 million investment. These projects have different levels of risk, and therefore different costs of capital. Their projected IRRs and costs of capital are as follows: Project A: Cost of capital = 18%; IRR = 20% Project B: Cost of capital = 12%; IRR = 16% Project C:...
Firm A and Firm B (not their real names) are competitors in the manufactured housing industry,...
Firm A and Firm B (not their real names) are competitors in the manufactured housing industry, so they often face the same investment opportunities. However, because Firm A is in better financial shape (and therefore less risky) than Firm B, its cost of financing is lower. Specifically, Firm A’s WACC is 11% while Firm B’s WACC is 15% Which of the following is/are true as a result of this? Group of answer choices You know, this is all very confusing....
5.5 Firm X is priced at $10 per share. Expected dividend next year is $1 per...
5.5 Firm X is priced at $10 per share. Expected dividend next year is $1 per share, and the expected stock price next year is $11. Therefore, stock is expected to earn (11 + 1 – 10)/10 = 20%. This implies that the company has required rate of return that is also 20%. (True / False) 5.6 When ROE < k, increasing _______ should increase the intrinsic value of equity.               a. Retention ratio               b. Dividend payout               c....
A firm’s value depends on its expected free cash flow and its cost of capital. Distributions...
A firm’s value depends on its expected free cash flow and its cost of capital. Distributions made in the form of dividends or stock repurchases impact the firm’s value and the investors in different ways. Consider the scenario, and answer the questions that follow: Suppose a firm generates a lot of cash but has limited investment opportunities. Is this stock more likely to be a utility stock or a technology stock? In addition, is the stock more likely to have...
6. Dividends, repurchases, and firm value Remember that the primary goal of a firm is to...
6. Dividends, repurchases, and firm value Remember that the primary goal of a firm is to maximize shareholder wealth by increasing the firm’s intrinsic value. It is thus important to understand the impact of distributions—both in the form of dividends or stock repurchases—on the firm’s value. Consider the following situation: Jessica is a financial analyst in Smith and T Co. As part of her analysis of the annual distribution policy and its impact on the firm’s value, she makes the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT