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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