ProcessIntermediate
What are the four factors that determine the optimal payout ratio for a firm according to the residual dividend model?
The four factors that determine the optimal payout ratio for a firm according to the residual dividend model are: (1) management’s opinion about investors’ preferences for dividends versus capital gains, (2) the firm’s investment opportunities, (3) the firm’s target capital structure, and (4) the availability and cost of external capital.
Key points
- Management's view on investor preferences for dividends vs. capital gains.
- Availability of profitable investment opportunities.
- Target capital structure of the firm.
- Cost and availability of external capital.
Source:Fundamentals of Financial Management, Concise Edition· Distributions to Shareholders: Dividends and Share Repurchases· p. 528–538
Related questions
Fundamentals of Financial Management, Concise Edition
Fundamentals of Financial Management, Concise Edition
Eugene F. Brigham, Joel F. Houston
9e · Cengage Learning