Chartered Financial Analyst Level 2

Explanation

A profitable company with only a few positive NPV projects is the most appropriate candidate for a dividend increase because:

• The company generates profits but has limited investment opportunities
• Returning excess cash to shareholders through dividends reduces agency costs
• This aligns with the mature company profile in the corporate life cycle

Other options:

• Fast-growing tech company should retain earnings to fund growth opportunities
• Company with volatile earnings should maintain conservative dividend policy to avoid future cuts

This follows the residual dividend policy where dividends are paid from earnings not needed for investments.