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Wordcount: 422

Chapter Dividends

Chapter 18: Dividend Policy and Retained Earnings A) The Marginal Principle of Retained Earnings 1: Each potential project to be financed by internally generated funds must provide a higher rate of return than the stockholder could achieve on other investments. 2: In choosing either to pay a dividend to stockholders or to reinvest the funds in the company, management’s first consideration is whether the firm will be able to earn a higher return for the stockholders. B) Dividend Payment Procedures 1: Dividends provide information content to shareholders. 2: An increase in the dividend is generally interpreted as a positive signal while dividend cuts are negative. 3: Shareholders generally prefer dividend stability. 4: The divid

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