One position expressed in the financial literature is that firms set their dividends as aresidual after using income to support new investment.a. Explain what a residual dividend policy implies, illustrating your answer with a tableshowing how different investment opportunities can lead to different dividend payoutratios.b. Think back to Chapter 14 where we considered the relationship between capital structureand the cost of capital. If the WACC-versus-debt-ratio plot was shaped like a sharp V,would this have a different implication for the importance of setting dividends accordingto the residual policy than if the plot was shaped like a shallow bowl (a flattened U)?

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