Question

Reynolds Paper Products Corporation follows a strict residual dividend policy. All else equal, which of the following factors would be most likely to lead to an increase in the firm's dividend per share? Select one: a. The company increases the percentage of equity in its target capital structure. b. The number of profitable potential projects increases. c. Congress lowers the tax rate on capital gains. The remainder of the tax code is not changed. d. Earnings are unchanged, but the firm issues new shares of common stock. e. The firm's net income increases.

Answer 1

Answer:

e. The firm's net income increases.

Explanation:

The amount of dividends paid to the shareholder is a function of the annual net income of the Reynolds Paper Products Corporation. The higher the annual net income of the organization, the higher the dividends paid to the shareholder and the lower the annual net income, the lower the dividends. Thus, an increase in net income will lead to an increase in the dividend.