CFA Practice Question

There are 151 practice questions for this study session.

CFA Practice Question

Which of the following is not a step in determining dividends under the residual theory of dividends?

A. determine the optimal capital budget
B. determine the amount of equity necessary to meet the target capital structure
C. use retained earnings to fill the equity requirement to the extent possible
D. determine the amount of external financing necessary to maintain a target payout ratio
Correct Answer: D

Under the residual dividend model, there is no target dividend payout ratio. The dividends are determined by the amount of earnings left over after optimal capital budget has been financed.

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