Question

Dividend payment linked to profits left-out after meeting the expansion needs is based on ......theory policy
A) signalling theory
B) residual payout policy
C) stable dividend policy
D) constant payout policy

Answer 1

Dividend payment linked to profits left-out after meeting the expansion needs is based on the theory of residual payout theory.

                  The reason why the theory of residual payout is used in such scenarios, because when a company earns profit it always makes use of the profits it earned for paying the share holders, and also for expansion of business.

Answer 2

Answer: b) Residual payout policy.  

This policy is also known as residual dividend policy.  

A company identifies the areas in which it needs expansion.  

It then distributes the entire profit which is left out after fulfilling such expansions.  

If the company tends to establish or acquire a new asset or funding a latest project, then dividend payments takes a back step and the priority is given to funding.