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Using the percentage of sales approach, if the dividend payout ratio is increased (paying more out),...

Using the percentage of sales approach, if the dividend payout ratio is increased (paying more out), how will this change impact external financing needed, holding other things equal.

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if we are using the percentage of sales method, and if the dividend payout ratio of the company is increased,it will mean that more of the dividend is paid to the company and it will mean that there would be a decrease in the retention ratio of the company so the overall retained earning of the company will be decreasing and it will lead to need for the external financing because there would be a lower cash available in the hands of the company so it would be meaning that there would be a higher amount of external financing needed.

HIGHER AMOUNT OF EXTERNAL FINANCING WILL BE NEEDED DUE TO INCREASING OF THE THE DIVIDEND PAYOUT RATIO.

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