If a Firm Adheres Strictly to the Residual Distribution Policy

Multiple Choice

If a firm adheres strictly to the residual distribution policy with all distributions in the form of dividends) , then if its optimal capital budget requires the use of all earnings for that year (along with new debt according to the optimal debt/total assets ratio) , the firm should pay

A) No dividends except out of past retained earnings.
B) No dividends to common stockholders.
C) Dividends, in effect, out of a new issue of common stock.
D) Dividends by borrowing the money (debt) .
E) Either c or d above could be used.