Question

Your firm adheres strictly to the residual dividend model. all else equal, which of the following factors would be most likely to lead to an increase in the firms dividend per share? please explain A) the firm's net income increases B)The company increases the percentage of equity in its target capital structure C) the number of profitable potential projects increases D) congress lowers the tax rate on capital gins, leaving the rest of the tax code unchanged E) earnings are unchanged, but the firm issues new shares of common stock

Answer 1

Option A) The firm's net income increases.

Step-by-step explanation:

The residual dividend model always tries to pay its debts with retained earnings, therefore, it can increase its net income through time because in the upcoming years it does not have to use its operational earnings on debts.

In this way, you can maximize the dividend per share over time by improving your net income.