1 The Residual Dividend Model is rarely used in practice Ins

1. The Residual Dividend Model is rarely used in practice. Instead companies use this model to set a maximum dividend. Why is this? Select all that apply:

The residual dividend model results in a volatile dividend.

There is no Cliental for the residual dividend model.

Stock investors like constantly changing dividends

Stock investors like stable predictable dividends.

2. Dividend Payout Ratios in Russia tend to be higher than in the United States. This implies which of the following?

Investors in Russia are more likely to believe in the Bird-In-the-Hand Theory since they do not trust Russian Accounting.

Investors in the US do not believe in any dividend theory.

Russian Investors are more like to follow the tax preference theory since Russia has lower taxes than the United States.

No dividend theory is implied from this information.

Solution

Residual dividend model says that a company should pay all the residual income after tax as dividend if any remaining.

This policy tends to provide a very fluctuating dividend rates, because of which the investors are not very excited to buy such stocks.

Therefore the answers are-

(a) The residual dividend model results in a volatile dividend - Since the income is unpredictable the dividends become volatile too.

(b) There is no Cliental for the residual dividend model.

Investors don\'t want to invest in a stock with fluctuating dividend history since it is expected to be risky.

(d) Stock investors like stable predictable dividends.

As per chegg guidelines we are supposed to solve only one question in case multiple ques. are posted.

Pleasse post the other ques. separately. Thanks.