Question & Answer: Which one of the following is the correct conclusion to draw from the trend in the dividend payout ratio?…..

20Y1 20Y2 20Y3
Net profit after taxes $350 $570 $710
Cash dividends $75 $180 $260

Which one of the following is the correct conclusion to draw from the trend in the dividend payout ratio?

A) the dividend payout ratio is shrinking, which will most likely result in increased borrowing needs.

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B) the dividend payout ratio is growing, so the business will most likely need to borrow less.

C) the dividend payout ratio is shrinking, which means the business will most likely need to borrow less.

D) the dividend payout ratio is growing, which will most likely lead to increased borrowing needs.

Expert Answer

 

Answer:-

D) The Dividend Payout ratio is growing, which will most likely lead to increased borriwing need

Reasson:-

As per the analysis, it has been observed that payout ratio is increasing to 21.42%,31.58% and 36.62% , so borrowing needs will be more likely in future.

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