Which of the following statements best describes a residual dividend policy?

Verified Answer: = B

This is exactly what statement B describes: “Dividends are paid only if no further positive NPV projects are available.” Under this policy, if the firm has many profitable projects, dividends may be low or even zero; if investment opportunities are scarce, dividends may be higher because more earnings are surplus.

Statement A is too vague: all companies must cover operational needs before paying dividends, so that does not uniquely describe a residual policy.

Statement C describes an extreme retention policy where all earnings are reinvested, which is not the same as residual dividends (where some surplus can be paid out).

Statement D refers to a stable dividend policy, where a constant or smoothly growing dividend per share is targeted, regardless of short-term earnings volatility.

Therefore, the best description of a residual dividend policy in F3 terms is B.